Courtesy of Sabrient Systems and Gradient Analytics
Stocks saw elevated volume and volatility last week, and the 100-day simple moving average on the S&P 500 proved to be the proverbial line-in-the-sand for bullish investors. I opined last week that the market seemed to have sufficiently cycled back down to oversold territory, so with a little more technical consolidation and successful testing of nearby support levels, the next move higher could easily commence at any time. So, the question remains as to whether that was the big new buying opportunity, or whether more backing-and-filling is needed. Personally, I would prefer to see a successful test of the 200-day SMA, but the market might not be so generous.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.
Market overview:
U.S. Treasuries continue to enjoy strong demand. The 10-year yield fell even further this week, closing Friday at 2.42%. So, the bond market is telling us that the Fed will not raise interest rates in the near term. However, high-yield corporate bonds, which have enjoyed a multi-year bull run as income investors have taken on risk in search of higher yields, saw accelerated losses last week. According to Bank of America Merrill Lynch, total dollar outflows last week were the largest ever and the fourth largest as a percentage of AUM. So, all in all, bonds displayed risk-off activity, which of course should be no surprise.
Of course, overbought technical conditions combined with frightening geopolitical turmoil have made equity investors hesitant. And then there was the $100 billion in M&A that suddenly collapsed last Tuesday when the Twenty-First Century Fox (FOX) acquisition of Time Warner (TWX) and the Sprint (S) bid for T-Mobile US (TMUS) both fell apart. Nevertheless, M&A and stock buybacks remain robust — and are expected to continue as such.
And Friday saw quite a resumption in bullish sentiment, with green across the board. In fact, all 13 of Sabrient’s Baker’s Dozen top stocks for 2014 finished the day positive. Interestingly, the five leaders in the portfolio on Friday were those…
