4 Ideas for a Market that Doesn't Know What It Wants

by: David Brown

Last week was yet another week of hanging around the1100 mark with the S&P500. It’s not that there weren’t important developments during the week. The trade deficit narrowed much more than expected, and retail sales got a substantial boost in November. Retailers alone sold $314.1 billion of goods, 1.4% more than in October and 2.2% more than a year earlier. Initial jobless claims countered by being a little worse than expected, rising by 17,000 to a seasonally adjusted 474,000 versus the expected 460,000.

But for the week the market didn’t do much of anything, with mid-caps leading the way (+0.5%), large-caps barely positive (+0.1%) and small caps being off less than -0.5%. Incidentally, the dollar was much stronger last week, but it didn’t have the negative impact on the market that it has had over recent weeks.

All in all, you didn’t miss much by sleeping through the week. Could the market be consolidating in advance of a major move?

Sectors. From a sector viewpoint, Utilities led the way, up 3% which probably reflects the lack of commitment by the market to any direction. Consumer Discretionary was up 1%, Financials were down 2.5%, and everything else was sandwiched in between. If you include today’s activity (Monday, the 14th), the market continues to have a slight bullish tilt. Small caps led the way today, up 1.5% and all sectors were positive with none doing much better than the others.

Click here to see the market stats.

Our forward looking sectors this week are led by Telecom, Healthcare, and Consumer Staples, with Materials, Industrials and Consumer Discretionary at the bottom. The dollar was relatively flat Monday and the Materials Sector was slightly ahead of the other, so if the dollar should resume its downward trend, Materials would likely do better than our forecast.

Be prudent. It was somewhat startling over the weekend to receive almost identically opposite forecasts from two respected pundits. One suggested that the market was at a peak and would “crash” during 2010, while the other insisted that we were about to go on a major surge. Nothing I’m looking at gives me that much strength of conviction in either direction. So I suggest that we continue to build prudent positions by purchasing undervalued stocks, selling fully valued or overvalued positions, and using hedges where feasible.

4 Stocks Ideas for this Market

This week, sticking with the theme of end-of-year market strength, I ran our proprietary MyStockFinder stock search tool using the Small Wonders pre-set search (including both small and micro-caps). I also up-weighted Short-Term Technicals, Long-Term Technicals, and Insider Buying. Lots of intriguing stock ideas popped up (you should try it yourself), but I whittled it down to just a few that might continue to surge with overall market strength:

Yuhe International (Nasdaq: YUII) – Consumer Staples
World Acceptance (Nasdaq: WRLD) – Financials
Cyberonics (Nasdaq: CYBX) – Healthcare
Kirklands (Nasdaq: KIRK) – Consumer Discretionary

Until next week,