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The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.


The FRED Report

) -- Here at

The FRED Report

, we have been forecasting a correction since April, and the market has now come down to the levels from which a rally could begin. While we emphasize that many of our proprietary indicators have not yet set up and forecast a rally, we are now actively looking for this to occur. We have been asked if we think this is a bear market: We do not -- but we do think the market has to spend some more time in the doldrums prior to a meaningful rally.

Another, more important question is, "What sectors will lead the next advance?" In our recent

Sector Review

, we analyzed and discussed the 10 primary sectors and made some shifts in our weightings. We will describe some of them in this article, and interested readers can email us for a copy of the report. Probably the biggest change in our sector outlook was to move the XLF (financials) to an equal weight from an underweight. We have been underweight financials for the last two years, and our models suggest that this sector could rally in the second half of the year. We acknowledge this is risky and possibly a little early as the Greek news has pushed down some of the banks and they may represent some good value here. We show some charts below.

We emphasize that, currently, financials are in technical downtrends and out of favor fundamentally. As such they are more risky ideas than we normally present here to

readers. At the same time,


(XLF) - Get Free Report

seems worthy of slow accumulation as it looks as if financials could do well when this current period of turbulence is over. We would not be surprised to see the Dow Industrials move toward the March low one more time -- so we would average into financials and the XLF.

The Energy Sector

We discussed the energy sector in last week's article, and are still interested in that. We think the sector could be a leader. We show two ETFs below, and also a couple of stocks of interest.

If oil leads the market in the second half of the year, these names should do well. They are the type of large, household name stocks that foreign money buys when coming into our market -- and this is one of our themes as well.

We would not be in a tearing hurry to buy these names -- the indicators suggest a bit more downside probing to set up the buying indication we expect. We would slowly dollar cost average into these names over the next few weeks to position for a rally in the second half of the year.

Fred Meissner is founder and publisher of

The Fred Report

. Fred is a CMT and past President of the Market Technicians Association (MTA). He recently left Merrill Lynch's Market Analysis Department and Sector Strategy Department to form The Fred Report.�A detailed bio is here:

Fred Meissner