Sector Detector: Defensive sectors lead hesitant market, but traders honor long-standing bullish support

March 31, 2015 at 00:34 AM EDT

Courtesy of Sabrient Systems and Gradient Analytics Last week, the major indexes fell back below round-number thresholds that had taken a lot of effort to eclipse. There has been an ongoing ebb-and-flow of capital between risk-on and risk-off, including high sector correlations, which is far from ideal. But at the end of it all, the S&P 500 found itself right back on top of long-standing support and poised for a bounce, and Monday’s action proved yet again that bulls are determined to defend their long-standing uptrend line. 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: Last Thursday, semiconductor stocks took a bath, taking the Philadelphia Semiconductor Index and the overall market down with it, when SanDisk (SNDK) warned that Q1 revenues could be 10% lower than forecast. The S&P 500 lost the 2,100 level, the Dow Jones Industrials lost the 18,000 level, and NASDAQ lost 5,000. But bulls stood firm at their line in the sand on Friday, leading to Monday’s powerful rally. Many are calling this the most hated and manipulated market in history. But hate has helped prevent the irrational exuberance and subsequent bursting bubble of previous markets, including 1987, 2000, and 2007, in which investors were not only fully invested but also heavily margined. Yes, equities are being bought, but the buying is cautious, hesitant. A good bit of high net worth capital is flowing into real estate, private equity, and hedge funds, which is defensive behavior. Indeed, as we reach the end of Q1, the top performing sector so far this year has been Healthcare by a wide margin, followed by Consumer Services (Discretionary/Cyclical), and then Telecom. As of Monday’s close, the only other sectors that are positive are Consumer Goods (Staples/Noncyclical) and Utilities. Overall, this is a defensive group. The CBOE Market Volatility Index (VIX), a.k.a. fear gauge, closed Friday at 15.07, which is just barely above the 15 threshold between investor fear and complacency. Nothing onerous here. The 10-year U.S. Treasury yield closed Friday at 1.95% and the U.S. dollar…

Courtesy of Sabrient Systems and Gradient Analytics

Scott Martindale Last week, the major indexes fell back below round-number thresholds that had taken a lot of effort to eclipse. There has been an ongoing ebb-and-flow of capital between risk-on and risk-off, including high sector correlations, which is far from ideal. But at the end of it all, the S&P 500 found itself right back on top of long-standing support and poised for a bounce, and Monday’s action proved yet again that bulls are determined to defend their long-standing uptrend line.

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:

Last Thursday, semiconductor stocks took a bath, taking the Philadelphia Semiconductor Index and the overall market down with it, when SanDisk (SNDK) warned that Q1 revenues could be 10% lower than forecast. The S&P 500 lost the 2,100 level, the Dow Jones Industrials lost the 18,000 level, and NASDAQ lost 5,000. But bulls stood firm at their line in the sand on Friday, leading to Monday’s powerful rally.

Many are calling this the most hated and manipulated market in history. But hate has helped prevent the irrational exuberance and subsequent bursting bubble of previous markets, including 1987, 2000, and 2007, in which investors were not only fully invested but also heavily margined. Yes, equities are being bought, but the buying is cautious, hesitant. A good bit of high net worth capital is flowing into real estate, private equity, and hedge funds, which is defensive behavior.

Indeed, as we reach the end of Q1, the top performing sector so far this year has been Healthcare by a wide margin, followed by Consumer Services (Discretionary/Cyclical), and then Telecom. As of Monday’s close, the only other sectors that are positive are Consumer Goods (Staples/Noncyclical) and Utilities. Overall, this is a defensive group.

The CBOE Market Volatility Index (VIX), a.k.a. fear gauge, closed Friday at 15.07, which is just barely above the 15 threshold between investor fear and complacency. Nothing onerous here.

The 10-year U.S. Treasury yield closed Friday at 1.95% and the U.S. dollar…