By Scott Martindale
President, Sabrient Systems LLC

In late May, the major US stock indexes finally eclipsed those pesky psychological levels and hit new highs, and this week they have managed to maintain the breakout even in the face of James Comey’s Congressional testimony and the British election, not to mention more saber-rattling from North Korea. The S&P 500 has held above 2,400, and the Dow has maintained the 21,000 level. The ultra-strong and Tech-heavy Nasdaq regained 6,300 and the Russell 2000 small caps moved back above 1,400 after both briefly pulling back below to test support early in the week. They both showed notable strength on Thursday after the James Comey testimony. Such backing-and-filling and technical consolidation was inevitable given that the proverbial “rubber band” was stretched so tight, with price rising well above the moving averages.

With the strength in Nasdaq, it should come as no surprise that the Technology sector has been by far the top performing sector, up about +22% year to date, while Energy has struggled, falling about -15% YTD. Notably, on Wednesday, oil prices fell more than 4% due to an unexpected rise in U.S. crude inventories.

In this periodic update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review Sabrient’s weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable ETF trading ideas. In summary, our sector rankings still look bullish, while the sector rotation model maintains its bullish bias. Volatility remains historically low, economic conditions continue to improve, and overall, the climate seems quite favorable for risk assets like equities – particularly dividend payers, small caps, and GARP stocks (i.e., growth companies among all caps selling at attractive forward PEG ratios). Read on....

By Scott Martindale
President, Sabrient Systems LLC

Stocks continue to hold up well, encouraged by improving global fundamentals and a solid Q1 corporate earnings season. However, at the moment most of the major US market indices are struggling at key psychological levels of technical resistance that have held before, including Dow at 21,000, S&P 500 at 2,400, and Russell 2000 at 1,400. Only the Tech-heavy NASDAQ seems utterly undeterred by the 6,100 level, after having no problem blasting through the 6,000 level with ease last month and setting record highs almost daily. Perhaps the supreme strength in Tech will be able to lead the broader market through this tough resistance level. Every time it appears stocks are on the verge of a major correction, they catch a bid at an important technical support level. In other words, cautious optimism remains the MO of investors – despite weighty geopolitical risks and, here at home, furious political fighting at a level of viciousness I didn’t think possible in the U.S.

There is simply no denying the building momentum in broad global economic expansion, and any success in implementing domestic fiscal stimulus will just add even more fuel to this burgeoning fire. That’s not to say that we won’t see a nasty selloff at some point this year, but I think such an occurrence would have a news-driven (or Black Swan) trigger, and likely would ultimately serve as a broad-based buying opportunity.

In this periodic update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review Sabrient’s weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable ETF trading ideas. Overall, our sector rankings still look bullish, while the sector rotation model has returned to a bullish bias even though stocks now struggle at strong psychological resistance levels.  Read more....

Much ado was made of China’s surprise 3% devaluation of their currency last week. But keep in mind, the yuan is pegged to the dollar, and with the dollar so strong, every major floating currency and commodity is down a lot more than that. Deflation is now a real threat. Then, there is the suddenly resolved issue of Greece’s debt (along with the worry of a domino-like fall of the entire Eurozone).

Of course, all eyes have been on Greece in an ongoing saga that, although critical to the Greeks, is mostly just an annoying distraction for global investors -- partly because it has been going on for so many years, with the proverbial can of inevitability continually being kicked down the road, and partly because there can be no winners in this intractable situation.

Two weeks ago, bulls seemed ready to push stocks higher as long-standing support reliably kicked in. But with just one full week to go before the Independence Day holiday week arrives, we will see if bulls can muster some reinforcements and make another run at the May highs. Small caps and NASDAQ are already there, but it is questionable whether those segments can drag along the broader market. To be sure, there is plenty of potential fuel floating around in the form of a friendly Fed and abundant global liquidity seeking the safety and strength of US stocks and bonds.

In the ongoing bad-news-is-good-news saga, last week’s surprisingly weak jobs report led to speculation that the Fed would delay hiking interest rates, which is perceived as a positive for equity investors. So, bulls are getting a boost for the moment, although those previously hard-won round-number price levels for the major indexes are now serving as ominous overhead resistance that will likely require a strong new catalyst to break through. Whether stocks are destined for downside or upside from here, Q1 earnings season starts this week and will likely provide the catalyst.

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.

U.S. stocks just continue to cruise right along, although investors seem to be displaying a healthy level of caution, looking over their shoulders as they whistle past the graveyard and bet on ongoing improvement in corporate earnings and economic growth. Despite extremely overbought technical conditions and regional hot spots that may ultimately threaten global economic recovery, investors seem undeterred.

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.

Bulls continue to climb their wall of worry, as uncertainty from the latest “bricks in the wall” created by Russia in Crimea, slowing growth in China, and Fed tapering fades into the mosaic.