Saved By Merger Monday

As of Friday afternoon, the U.S. stock market's recent upside breakout appeared to be reversing. As has so often been the case this year, Monday morning brought several merger and acquisition announcements that rejuvenated the bulls. Such news is usually positive for the broad market because it suggests that the "smart money" still believes stocks are relatively undervalued. While the gains faded in the afternoon, the S&P 500 did manage to move back above the key June high point around 1540.

One of the merger announcements this morning involved energy services, a sector in which all our model portfolios have a keen interest. Transocean (RIG) agreed to buy its rival GlobalSantaFe (GSF) for approximately $17 billion. The new company will be triple the size of the next largest competitor, which is bullish for the whole sector's profit margins. As of publication time most energy mutual funds had not reported for the day, but the Oil Service Index (OSX) was up +1.9%. PowerShares Dynamic Oil & Gas Services (PXJ) gained +1.2%.

The automotive sector lost much of its momentum last week, letting Fidelity Select Automotive (FSAVX) slide down the ranking table. Gold funds and transportation sector funds are starting to get more attention. We will watch these sectors closely.