What the Market Wants: Market Bullies Its Way Through Resistance
Riding a wave of positive corporate announcements -- among them, CISCO (Nasdaq: CSCO); The Blackstone Group (NYSE: BX); Coca Cola Bottling (Nasdaq: COKE); and Dynergy (NYSE: DYN) -- and a number of positive economic releases, the market bullied its way through resistance to make net gains every day last week for the S&P 500. The result was a 3.2% gain for the S&P and consistent strong market action through all cap/styles and all sectors.
The strength continued today (Monday) with the S&P 500 up over 2% without even a hiccup. I have to admit that I'm impressed with this market right now.
The leading cap/style was Small-cap Growth, up 4%; the laggard was Small-cap Value, up a respectable 2.3%. Fueled by a declining dollar, Materials was the leading sector, up 6%, but the two defensive sectors that brought up the bottom -- Utilities and Consumer Staples -- were not exactly slouches, gaining 2% each.
Click here to see the Market Stats.
The bottom line is that a treat was had by all, unless, of course, you happened to be one of the 10.2% Americans who remain unemployed. And that remains the most negative element hanging over the market's seven month rise since March 6, a rise that now totals more than 63%.
Bulls Prevail, at Least for Now. The prevailing bullish view is that the increase in productivity and the gains in the ISM Manufacturing Index were far more important than unemployment rising above 10%. I do not agree with that assessment, but then again I don't get to decide what the market is going to do. And in fact, at Sabrient we like to build portfolios in which market direction doesn't matter.
It is good news that in the Q3 results, which are now more or less wrapped up, about 75% of all companies met or beat earnings estimates. Q3 was also much improved over Q2 in that nearly 50% of all companies met or beat their revenue estimates.
What Does This Market Want? Taking a forward look, the Sabrient SectorCast rankings are pointing toward positive gains ahead for the Telecom and Healthcare sectors. I would be bit cautious about Healthcare until this world-changing legislation gets through Congress but would continue to favor Telecom, Technology and Consumer Staples. I continue to be skeptical of Materials due to its surge driven by the declining dollar, which may or may not continue, and the fact that valuations are currently the most extended of all sectors according to our models.
Given the unemployment number and the continued risk in our financial system, I recommend continued bargain-hunting in the Telecom, Technology and Consumer Staples sectors. And you can stick with your favorite caps since they all seem strong at this time.
4 Stocks Ideas for this Market. This week, I ran a MyStockFinder search (http://MyStockFinder.com) using the Small Wonders preset search. I included small caps as well as micros, and I slightly upweighted Technicals and Insider Buying. I also limited the sectors to the three identified above: Telecom, Technology, and Consumer Staples. Here are four stock ideas that perked my interest:
Nortel Inversora (NYSE: NTL) – Telecom
InterDigital Inc. (Nasdaq: IDCC) – Technology
Changyou.com Ltd. (Nasdaq: CYOU) – Technology
Nash-Finch Co. (Nasdaq: NAFC) – Consumer Staples
Until next week,
David Brown
Chief Market Strategist
SABRIENT SYSTEMS, LLC
Leaders in Investment Research
Follow us on Twitter: http://Twitter.com/ScottMartindale
Full disclosure: Neither Sabrient, David Brown nor Scott Martindale holds any of the stocks mentioned in this week’s “4 Stocks to Consider.”
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Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.