Sometimes an extra few days can add a great deal more perspective. A week ago, while it looked like the Nasdaq and other major indices had bottomed, it was still too early to state definitively that the correction was over. With the Federal Reserve’s announcement on interest rates last week and the ensuing market action, the markets have rounded the corner and a new advance is underway.

There are still a few supposed market experts warning that the correction is going to get worse. As recently as last week one was predicting that the Nasdaq would find support at 1500, about 30% below its current level. Now even that pundit has admitted he was wrong and he is predicting that there will be a short rally before the market begins its next big downward move. Since this was the biggest correction of the past three years, it is difficult for me to believe that something much larger is just over the horizon, especially since most of the economic data is strong.

While some market risk remains, it certainly appears that stocks have found some solid footing since the Fed’s decision. The chart below shows the daily price movement of the Nasdaq. The gold line is a 200-day moving average and while the index has yet to climb back above that mark, momentum is now positive as shown by the 12-day momentum indicator (middle) and the Moving Average Convergence Divergence (MACD) on the bottom.

Rising oil and gas prices have again propelled energy to the top of the sector rankings for the past 30 days. Other sectors that languished during the correction are also moving up again. A few weeks ago I wrote that the sectors that had the most momentum before the correction often regain their leadership coming off the bottom. That certainly seems to be true in this instance, as some of the sectors that posted big gains prior to the correction are now picking up steam again.

Prior to the correction, Latin American and emerging market funds were among the top performers. The gold line on the chart below is iShares S&P Latin America 40 Index Fund (ILF). It has gained more than 20% since mid-June, allowing it to regain about half of what it lost since the correction began in mid-May. Energy funds have also done well. The black line on the chart is Select Sector SPDR - Energy (XLE). Over the same period it has gained about 15%. The blue line is iShares Cohen & Steers Realty Major Index Fund (ICF). This fund is not nearly as volatile as the other two so the real estate sector is only up about 5% from the bottom. But this continues to be a strong sector, in spite of many forecasts that say the housing market is on the verge of collapse.

In truth, most sectors have made decent gains over the past couple of weeks. Health care has been weak because defensive investors are rotating out of health care and into sectors that will provide better gains as the market takes off on its next upward surge.

Right now many of you might be reading this thinking, “How come I haven’t made 15% in my account since the market bottomed?” The answer is that active management is a defensive strategy. The only way to catch every exact bottom is to buy and hold. So the buy and hold investor saw his ILF shares gain 30% over the past couple of weeks. That same investor, however, also saw those shares decline by about 50% before the upward turn. In other words, he is still worse off than the investor who moved to the sideline in mid-May and is just now getting back into the market.

It should also be noted that emerging markets and energy are among the most volatile sectors. While the gains can be impressive when things are going well, the losses can be emotionally staggering when a correction occurs. For most investors, these kinds of positions should only make up a small portion of one’s overall portfolio. The bulk of one’s investment assets should generally be allocated to more conservative strategies and funds.

In next week’s comments, I’ll provide some examples of the types of funds I’m talking about. In the meantime, have a great summer weekend.