Canadian financial stocks typically start their outperformance towards the end of October. Canadian banks have a year end of October 31st and they have often announced dividend increases at this time and forecasted positive results for the next year. In anticipation of positive announcements at the end of November, investors tend to increase their holdings in November.

So far this year, after positive announcements by most of the large banks, the sector has performed in a lackadaisical fashion. Despite the sector being in its period of seasonal strength it is not expected to dramatically outperform the market. As a result, it is not substantially overweighted in the HAC portfolio.

There maybe a pickup for Canadian banks after the American banks “prove” themselves. This is what took place last year. As it is the American financial sector that lead the market into its steep decline, investors will be looking for signs of change mid-January during the release of bank’s earnings. It is possible that the sector might pickup early if there is a expectation of strong earnings. Nevertheless, investors, like last year, will be hesitant to take a large position in Canadian banks until the sentiment for American banks becomes more positive.

The consumer discretionary sector has been performing as expected as it is outperforming the consumer staples sector. During the favourable six months from the end of October to the beginning of May the discretionary sector is the preferred sector. This year the consumer discretionary sector has been outperforming the consumer staples sector, as expected.

The agriculture sector, represented in the fund by the holding MOO, Market Vectors – Agribusiness ETF, has performed extremely well. On a seasonal basis the agriculture sector usually outperforms from August to December. This year the sector has performed particularly well as grains have benefited from the falling U.S. dollar, fertilizer stocks have benefited from farmers no longer on the brink of bankruptcy needing to apply fertilizer and increasing farm equipment sales.

From a technical perspective the sector has had a breakout and is expected to continue to do well. From a seasonal perspective the sector finishes its period of strength at the end of the month and investors should consider reducing or exiting their positions.

Technology stocks have been doing well in accordance with their seasonal trends. Both the XLK, Technology Select Sector SPDR Fund, and SMH, Semiconductor HOLDRs Trust, holdings have been outperforming the market recently. The seasonal sector trade for these sectors ends on January 17th, but it is usually prudent to start lightening up on the sector before the Consumer Electronics Show in Las Vegas which takes place in the first week in January 2010.

The HAC fund has been well positioned in the market place to take advantage of outperforming trends in the market. The materials sector in the Canadian market has been performing well. One of the main sector holdings for HAC is XMA, iShares CDN S&P/TSX Capped Materials Index Fund. This ETF has benefi ted from strong performance in gold, fertilizer and metals and mining stocks. Approximately 60% of the fund is gold stocks, 18% fertilizer stocks and a sizeable portion of metals and mining stocks. Recently, all three of these sectors have been outperforming the market – gold has been rising and has crossed the $1,200 threshold, fertilizer stocks have done well as demand has increased for fertilizer, and the metals and mining stocks have been doing well in part as a result of the declining U.S. dollar.

Gold has its strongest seasonal strength from July 12th to October 9th. At that point it often corrects and then at the beginning of November it once again starts to rise. This year gold did not produce a gain from October 9th to October 30th. At the beginning of November once again started to increase. Gold very often will increase until approximately the end of the year, or even into February with strong momentum.

Based upon the seasonal trends it is prudent to consider lightening up on gold positions over the short to midterm. The same rational applies to XMA as it is mainly gold stocks.

Despite the debate of whether the economy is in trouble in the long-term, the economy has been showing signs of life once again. Investor’s confidence is up and the market has been doing well.

Although the market may be a bit pricey, and there may be some volatility ahead, there is still some room to grow. This is particularly true as we are in the favourable period of the year (October 28-May 5). Yes, there are times when the market goes down in this period, but the times are few and far between. Over the last sixty years, the S&P 500 has only lost 10% or more two times. Surprisingly, despite the volatility last year, the S&P 500 produced a 6.5% gain in the favourable period in 2008-2009.

S&P 500 – Last 3 Years