The financial sector closed on Friday May 16, 2008 at $196.28.

The high over the last year was $223.89 on October 31, 2007 and the low was $174.31 reached on March 14, 2008. From the peak to the trough that represents a drop of –22.1% for the financial sector vs. the TSX which dropped –9.4% and the S&P 500, which dropped –16.9%. Year-to-date the TSX is up 8.3% and the S&P is down –2.9% while the financial sector is down –4.2%. Since March 14th the TSX is up over 10% and the S&P is up about 8.8% while the healthcare sector is up over 12.6%. Like healthcare, is this a potential longer-term trend reversal with some sustainability?

Again, like healthcare, the chart suggests that we could be seeing a shift in the trend from a negative downward channel to a positive upward channel. The current price crossed the 50-day moving average on March 1st with a brief interlude below and then back above on March 18th. It has managed to maintain it’s status above the 50-day moving average since then. We have seen the start of an upward channel forming represented by the lower trend line showing rising bottoms and the upper trend line showing rising tops.

Some of the Canadian Companies you may recognize in this sector are Canadian Imperial Bank of Commerce, Bank of Montreal, Toronto Dominion, Royal Bank Canada, Bank of Nova Scotia, Sunlife Financial, Power Financial Corp and AGF Management.

Financials are looking pretty attractive with higher dividend yields and lower valuations. I would be cautious about the timing given the recent run-up. Technically, we are getting a buy signal but fundamentals caution us because banks are highly leveraged. At the end of May we will see banks report earnings and expect more write-downs to follow in the financial sector. Royal Bank pre-announced write-downs of $855 million last week. This didn’t seem to bother investors because the price rose and has continued to do so.

The health care sector closed on Friday May 9, 2008 at $41.45.

The high over the last year was $50.62 on July 19, 2007 and the low was $34.43 reached on March 14, 2008. From the peak to the trough that represents a drop of –30.7% for the health care sector vs. the TSX which dropped –9.4% and the S&P 500, which dropped –17.1%. Since March 14th the TSX is up over 10% and the S&P is up about 8.8% while the health care sector is up over 20%. Is this a longer-term trend reversal with some sustainability?

The chart suggests that we could be seeing a shift in the trend from a negative downward channel to a positive upward channel. The current price crossed the 50-day moving average on March 18th with a significant spike in price and has managed to maintain it’s status above the 50-day moving average with a brief interlude below on April 15th. Since March we have seen the start of an upward channel forming represented by the lower trend line showing rising bottoms and the upper trend line showing rising tops.

Some of the Canadian Companies you may recognize in this sector are Biovail, Cardiome Pharma Care, CML Healthcare and MDS Inc. Cardiome is up about 55% and MDS Inc. is up 25% while CML Healthcare and Biovail are both down since March 14th.

Even though things look good from a technical standpoint, from a practical standpoint only a few companies have driven the recent rise in the health care sector. Given the nature of price movements in this sector, positive test results or approvals usually drive the price not the fundamentals of the stocks. The health care industry is very narrow in Canada so caution is warranted.

The consumer staples sector closed on Friday May 2, 2008 at $171.03.

The high over the last year was $211.22 on July 18, 2007 and the low was $156.77 on March 17, 2008. From the peak to the trough that represents a drop of - 24.5% for the consumer staples sector vs. the TSX, which dropped – 11.2% and the S&P 500, which dropped –17.4%. Since March 17th the TSX and S&P 500 are both up over 10% while the consumer staples sector is up 7.2%. Although this sector has lagged the broader market don’t lose hope, especially during a slowdown.

The chart suggests that we could be seeing a more positive trend. The current price crossed the 50-day moving average on April 30, which is one positive signal. Since March we have seen the start of an upward channel forming and if the current price can break through the next point of resistance of $173, which is not far off, maybe the worst is behind us in this sector.

Some of the Canadian companies you may recognize in this sector are Loblaw Companies Limited, Maple Leaf Foods Inc., Rothmans Inc., Saputo Inc., and Shoppers Drug Mart Corporation. Typically during an economic slowdown or recession companies like this hold up well because everyone needs food and drugs.

The other day I went to buy frozen blueberries and the price of a bag was over $17 vs. $13, about a month ago. Wow, that’s a 40% increase! So what did I do? Bought frozen strawberries for about $8. Is this a sign of things to come? The only question in my mind is how will rising food prices factor into profits for grocery stores?

The Consumer discretionary sector closed on Friday April 25, 2008 at $101.07.

The high over the last year was 130.71 on July 18, 2007 and the low was 98.57 on March 3, 2008. From the peak on July 18, 2007 to the trough on March 3, 2008, the consumer discretionary sector dropped over 24% compared to the TSX, which only dropped a little over 6%, and the S&P 500, which dropped almost 14%.

Why such significant under-performance? The markets are always forward looking and with all this talk of a recession, one can only surmise people anticipating cutbacks in spending on the consumer discretionary front. Historically markets have fallen in the six months preceding a recession.

The charts are not giving any different insight or reason to be bullish in this sector. Despite the current price recently crossing the 50-day moving average, it does not appear to be forming any significant new trend.

Some familiar names in this sector are Aeroplan Income fund, Astral Media, Ballard power Systems, Canadian Tire Corporation Limited, CanWest Global Communications Corp.