What the Market Wants: Market Roars Ahead, So What Should We Worry About?
Market Roars Ahead, So What Should We Worry About?
By David Brown, Chief Market Strategist, Sabrient Systems
The worst Thanksgiving week for the market since 1942! Shoppers went wild over the weekend. Market’s up strong today. Europe’s gasping for breath. No words I could write would put this situation in better perspective than Daniel Sckolnik, my fellow author at Sabrient, did in his piece yesterday. Daniel writes a weekly article called the ETF periscope. Here is his piece from 11/27/11:
If Wall Street has any chance of finishing 2011 in the black, it had better make a major move this coming week.
Not only is time running out before the New Year’s mirrored ball drops over Times Square, December storm clouds appear to be blowing hard in from across the Atlantic, courtesy of the EU, that could make the likelihood of a winning year a long-shot bet.
Last week’s market action continued Wall Street’s most recent slide into the red, as all four sessions of the holiday-shortened week succumbed to Bearish tendencies for the major indexes.
For the Dow Jones Industrial Average (DJIA), that makes six losers over the course of the last seven sessions. The Dow has lost 7% of its value over this period, dropping close to 900 points. It now sits over 2% below its 50-day moving average.
Perhaps of greater significance, the S&P 500 Index (SPX) has fared even worse, losing the last seven days the market has been open for business. During this same time frame, the SPX shed close to 100 points, shaving 8% off its value. It, too, ended Friday below its 50-day MA, posing a strong technical degree of resistance that could contribute to keeping the benchmark index from achieving an annual victory.
As of last Friday, the Dow was down 4.8% for the week, off 3% for the year. The SPX was down over 4.5% on the week, and just under 8% for the year. Also down was the Nasdaq Composite Index (COMP), falling just over 5% as of Friday, which put it in the red by about 8% on the year to date.
However, it’s possible Wall Street might be able to catch some wind in its sails from a combination of positive numbers out of the retail sector and the next round of economic data out of Washington.
Based on the first round of numbers to emerge from the retail sector, consumers seem to be spending more of their dollars on Black Friday sales than the previous year. If that trend holds up into Cyber Monday, when online retailers make their own version of the post-Thanksgiving, pre-Christmas push, then investors may take that as enough of a positive sign to jump back into, at the very least, certain consumer-oriented sectors of the market.
The next potential part of a one-two Bull punch could come from a positive reading based on this Wednesday’s regularly scheduled Beige Book report, which offers up the Fed’s latest survey of the economy. If investors interpret the report as a sum positive, then any solid numbers to emerge from Friday’s jobs report could carry the market on an upward trend.
However, based on the market’s performance over the last several months, it may take more than a strong string of positive domestic economic reports to trump any more sour news out of the European Union.
So the question becomes, what will the tenor of news be out of the EU this week?
With the final EU summit of the year coming up on December 9, the only thing to be counted upon is that prior to the summit’s conclusion, there will be a steady flow of conjecture.
While it is far from clear where the talks will end up, the focus of the summit will certainly be based around the direction the EU needs to go in order to survive as a union.
It is one thing when the bonds of Greece, Portugal and even Italy are under attack by the market. It is of an altogether different nature when, as happened last week, both German and Belgium bond yields drift up higher than expected. When these lynchpins of the EU’s foundation are being shaken, Wall Street’s chances of ending the year in the black become seriously diminished.
To put his words in better perspective, you should also take a look at Daniel’s recent article, “EU Contagion: A Pair Of ETF Remedies To Hedge What Ails You,” which you can find on Seeking Alpha.
Market Stats. Today, positive U.S. economic news continued to trickle in, as New Home Sales were up to 307K from 303K, though not quite the expected 312K.
3 Stock Ideas for this Market
This week, I used the GARP (growth at a reasonable price) preset search in MyStockFinder (http://MyStockFinder.com). I also included Buys, in addition to Strong Buys. Here are three stock ideas that look intriguing:
Patterson-UTI Energy Inc. (PTEN) – Energy
Chemed Corp. (CHE) – Healthcare
Coinstar Inc. (CSTR)—Non-Cyclical Consumer
Until next week,
David Brown
Chief Market Strategist
Sabrient Systems, LLC.
Leaders in Investment Research
http://www.sabrient.com
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Full disclosure: The author holds no positions in this week's "stock ideas."
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 their personal financial 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.