What the Market Wants: Underlying Bid Refuses to Falter
by David Brown, Chief Market Strategist, Sabrient Systems, LLD
David Brown
Monday, August 24, 2009, 4:04 p.m. PST) Another sleepy, low-volume summer week. The market held its own today, with the S&P500 virtually flat. There is an underlying bid that has simply refused to falter. Long positions continue to reward, but there are signs that appropriate profit protection measures should be in place.
Small-cap Value, after moving from best performing style/cap to worst the prior week, returned to its glory last week with nice 3.3% gain to lead the pace. Large-cap Growth had the smallest weekly gain as the flight to safety during the prior week gave way to the
prevailing speculative optimism. In fact, I continue to see the more aggressive, lower quality-of-earnings companies outperforming as investor optimism spurs speculative buying. So for now, optimism is winning out over caution, and greed is overcoming fear on the scale of emotions.
Friday, the market rejoiced in positive news on existing home sales and Fed Chairman Bernanke's comments about how the U.S. is poised for recovery. Today (Monday, August 24), Britain's Institute of Chartered Accountants said that business confidence has turned positive for the first time in two years. Also, the Chicago Federal Reserve branch reported a continued trend toward the positive in its national activity index, rising from -1.82 in June to -0.74 in July.
Sector Summary. From a sector viewpoint, all were positive last week, led by Energy among large caps and Consumer Discretionary among small caps. Last week, it was Consumer Discretionary that was the weakest performer. Most notable among the Industries was Paper & Forest Products, which had an incredible week, particularly in the unweighted (small-cap-dominated) index, which was up a robust 9.87%.
On a forward basis, the same four sectors from last week continue to lead the weighted (large-cap-dominated) rankings -- Utilities, Health Care, Energy and Consumer Staples, although Health Care drops down a bit from an unweighted (small-cap-dominated) standpoint. Financials, Materials, and Technology continue to rank lower, primarily on valuation issues.
[Here are the Market Stats, which include Style & Cap Overview, Current Sector Performance, Best and Worst Industries, and Forward-looking Sector Rankings.]
We’ve had nice 5.5% run on the S&P 500 since last Monday’s pullback. I would continue to advise the prudent investor to take profits on issues that have reached full valuation and look for bargains, especially if the market takes an overdue breather and gives us the correction that many have been calling for. If it does, look for some support to come in around 1000 on the S&P 500, and followed by 980 and 940.
By the Way, I’m taking a couple of days off in Carmel, CA, after spending the weekend at the San Francisco Money Show with the fine people from GreenFaucet.com. It was great meeting so many of you who took the time to come out and chat with us at the booth, and I’d like to extend a special thanks to those who attended my presentation or watched via live Webcast. And to all the new Trader’s Talk subscribers -- welcome!
Stocks to Consider. This week, given the possibility of the market taking a breather, I ran a MyStockFinder search (http://MyStockFinder.com) using the Under-valued Large Cap Growth preset search to identify some bargains among the strongest companies. I also included Mid Caps, and gave some weighting to Long-Term Technicals. Here are a variety of stock ideas that caught my eye:
- Atwood Oceanics (NYSE: ATW) -- Energy (Energy Services)
- Cubist Pharmaceuticals (Nasdaq: CBST) -- Healthcare (Pharma & Biotech)
- Discovery Communications (Nasdaq: DISCA) -- Consumer Discretionary (Media)
- Unum Group (NYSE: UNM) -- Financials (Insurance)
Until next week,
David Brown
Chief Market Strategist
Sabrient Systems, LLC
Leaders in Quantitative Investment Research
www.sabrient.com
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