Stocks ended last week on a high note, closing a smidge above strong resistance at 1900 for the S&P 500, which set a new closing high for the large-cap index, albeit on low pre-holiday volume. With the Memorial Day holiday giving us a short week of trading, all eyes are on voting in Ukraine, where a decisive win for billionaire business tycoon Petro Poroshenko seems assured.

Rather than a Great Rotation from bonds into equities, the rotation instead has been from growth into value. Among the ten U.S. business sectors, uber-defensive sector Utilities is still the clear leader year-to-date, up more than +10%, followed by Energy and Healthcare. Healthcare and Materials were the leaders last week. Consumer Services/Discretionary remains the clear laggard YTD. Moreover, rather than bond prices falling, the 10-year Treasury yield has fallen even further to 2.52%, further indicating a flight to safety.

The technical picture for stocks has shifted from bearish into neutral, and our fundamentals-based sector rankings appear to have moved from bullish to neutral, as well. Thus, caution remains the order of the day until either the bulls or bears can find a catalyst -- and enough recruits -- to move the ball in their direction.

Stock market bulls made a valiant effort to fight off another looming correction last week. The economy is showing strong signs of recovery, the Fed remains confident enough to continue its stimulus tapering, and attractive alternative investments to the U.S. stock market seem scarce. Yes, bulls are all dressed up for more fun times. However, the technical picture paints a different story, at least for the near term.

Overall, the economy appears to be on a steady path to recovery. As the Federal Reserve eventually allows interest rates to rise, we likely will see a rotation out of value and into growth as defensive debt-intensive companies struggle relative to companies that have lower debt burden and stronger prospective earnings growth.

As I suspected it might, the stock market bounced strongly last week. Weakness the prior week was due in part to traders exiting positions for vacation during the holiday-shortened week, protecting big capital gains, cashing out to pay taxes on capital gains, and “delta hedging” on put options. However, I’m not convinced that the pullback was sufficient to create the great buying opportunity -- but it was sure a tradable bounce.

Last week’s market performance was nasty again, especially for the Small-cap Growth style/cap, down 4%.  Large-caps faired the best, losing only 2.7%.  That’s ugly and today’s market seemed likely to be uglier today with escalating tensions over the weekend in Ukraine. 

The sudden bearish turn last week in the market -- after hitting new highs the prior week -- has come fast and furious as selloffs are wont to do. And the pullback might have further still to go. But there are several reasons to expect a stabilization or bounce during this holiday-shortened week, and in any case I still expect that it eventually will turn out to be a great buying opportunity leading to higher prices later in the year.

What can we say after yet another sharp sell-off?  Since last Friday’s open, the S&P 500 has fallen nearly 3%, the Nasdaq has fallen more than 4.3% and the Russell 2000 has fallen more than 3%.

Although the large caps set new highs early on Friday, small caps and NASDAQ have not come close to their prior highs. Friday closed with extreme weakness across the board, and it was on high volume. The technical picture and our fundamentals-based sector rankings have both taken a bearish turn, so we might see more weakness ahead.