Sector Detector: Bulls rule as volatility recedes and investors position for holiday cheer

November 10, 2014 at 08:51 AM EST

Courtesy of Sabrient Systems and Gradient Analytics After displaying a classic V-bottom reversal to what turned out to be a quick and anemic attempt by the bears to bring about a real correction, bullish fervor is becoming contagious, especially as the traditionally strong holiday season approaches. Indeed, the brief selloff was snatched up as a buying opportunity as I predicted it would, but my concerns about the market consolidating and struggling to hit new highs before year end were quickly dismissed. So, with nothing but blue skies overhead, will the party simply roll on? 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: Bulls are back in control. The S&P 500, Dow Jones Industrials, and NASDAQ 100 each have surged well above their respective round-number millennium resistance levels — 2,000, 17,000, and 4,000 — while the broader NASDAQ Composite is getting within sight of challenging the 5,000 level (last seen during the heights of the Internet bubble) and the Russell 2000 small caps are eyeing the 1,200 level once again. And why not? Unemployment recently fell to 5.8%, GDP is growing better than 3%, interest rates remain low, corporate earnings reports continue to come in slightly better than expected, stock buybacks continue while capital investment is returning, the overblown worry about an Ebola pandemic in the U.S. has subsided, and ECB and BOJ are taking the baton from the Federal Reserve in the way of liquidity programs. (And keep in mind, the Fed is not unwinding its balance sheet, so maturing securities are being reinvested.) Moreover, the 10-year U.S. Treasury bond yield closed Friday at 2.31%, with little impetus for it to rise anytime soon. With a forward P/E of about 16, when you compare the S&P 500 earnings yield of about 6.3% with the 10-year Treasury yield, the spread is about 4% versus the historical norm of about 3%. So, there is plenty of room for higher equity valuations. Also worth mentioning, ConvergEx reported in their Morning Briefing that using the 30-year averages of comparative price ranges, U.S.…

Courtesy of Sabrient Systems and Gradient Analytics

After displaying a classic V-bottom reversal to what turned out to be a quick and anemic attempt by the bears to bring about a real correction, bullish fervor is becoming contagious, especially as the traditionally strong holiday season approaches. Indeed, the brief selloff was snatched up as a buying opportunity as I predicted it would, but my concerns about the market consolidating and struggling to hit new highs before year end were quickly dismissed. So, with nothing but blue skies overhead, will the party simply roll on?

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:

Bulls are back in control. The S&P 500, Dow Jones Industrials, and NASDAQ 100 each have surged well above their respective round-number millennium resistance levels — 2,000, 17,000, and 4,000 — while the broader NASDAQ Composite is getting within sight of challenging the 5,000 level (last seen during the heights of the Internet bubble) and the Russell 2000 small caps are eyeing the 1,200 level once again.

And why not? Unemployment recently fell to 5.8%, GDP is growing better than 3%, interest rates remain low, corporate earnings reports continue to come in slightly better than expected, stock buybacks continue while capital investment is returning, the overblown worry about an Ebola pandemic in the U.S. has subsided, and ECB and BOJ are taking the baton from the Federal Reserve in the way of liquidity programs. (And keep in mind, the Fed is not unwinding its balance sheet, so maturing securities are being reinvested.) Moreover, the 10-year U.S. Treasury bond yield closed Friday at 2.31%, with little impetus for it to rise anytime soon.

With a forward P/E of about 16, when you compare the S&P 500 earnings yield of about 6.3% with the 10-year Treasury yield, the spread is about 4% versus the historical norm of about 3%. So, there is plenty of room for higher equity valuations. Also worth mentioning, ConvergEx reported in their Morning Briefing that using the 30-year averages of comparative price ranges, U.S.…