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Surprise! The market roared ahead Tuesday morning, with all three major domestic indices up at least 1.5%. The move was triggered by a weekend with little negative economic news domestically and globally. Then Tuesday morning, an impressive increase in Consumer Confidence to 76.2, which was not only well above last month's 68.1 and the projected 72.5 but also a 5-year high, provided investors something to cheer about. That was followed by a robust 10% increase in the Case Shiller HPI which resonated well with investors.

These positive numbers, following last Friday's positive release on Durable Goods, New and Existing Home Sales and improved Initial Jobless Claims generated extreme market enthusiasm at Tuesday's opening bell. However, after an hour of strong positive trading, reality set in and profit taking followed. Some based their skepticism on continued interest rate concerns triggered by the release of Fed notes last week. Market gains were trimmed to less than 0.5% within an hour of the closing bell. Then buyers re-entered the picture to move the markets closer to the opening levels, although the highs were not reached. Nevertheless, Tuesday was a very positive start to the week with the Dow up more than 100 points (another new high), the S&P 500 up more than 0.5% percent and the Nasdaq up nearly 1% percent.

So where to from here? As we pointed out last week, market valuations are a bit above historical average valuations. There continue to be numerous stocks with good growth opportunities at bargain prices. The best sectors to target would seem to be Cyclicals, Energy and Basic Materials. Technology is ok if analysts are revising EPS estimates upwards. Healthcare is ok on the same basis. Financials would seem to be at risk if interest rates begin to climb or are even predicted to climb later this year or even next year. Avoid Utilities, Telecomm and Consumer Non-Cyclicals, which seem fully priced. Industrials are diverse and require significant individual company analysis. Look for low to reasonable debt levels as well.

Here are the Market Stats:

Four Stock Ideas for this Market

I selected the following stocks from a GARP preset search:

  1. JAZZ Pharmaceuticals (NASDAQ:JAZZ)- Healthcare
  • Trading for 13.25x current earnings and 8.81x forward

  • Projected EPS growth: 39.4% current quarter, 21.7% next quarter

  • Nearly all analysts covering have revised EPS estimates upward in the last 30 days

  1. Capital One Financial Corp (NYSE:COF) - Financials
  • Trading for 11.59x current earnings and 9.34x forward earnings

  • Recent upward analyst revisions to EPS estimates

  • Projected EPS growth: 937% current quarter

  1. Tesoro Corporation (NYSE:TSO)-Energy
  • Trading for 11.24x current earnings and 9.19x forward earnings

  • Projected EPS growth: -43.2% current quarter, 9.8% next quarter

  • Recent upward analyst revisions to EPS estimates

  1. Western Alliance Bancorporation (NYSE:WAL) - Financials
  • Trading for 15.58x current earnings and 12.38x forward earnings

  • Projected EPS growth: 80% current quarter, 55.6% next quarter

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Is The Market Too High?