Market Lacks Short-Term Memory

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 |  Includes: ABC, EZPW, UFPT, WDC
by: David Brown

The market seems to have a problem with its short-term memory. Last week it was all depressed with most components dropping 2% or more on Friday, and the whole Financial Sector was down badly because of the concern about the Greek debt and the announcement of the possibility of an investigation to pursue criminal charges against Goldman Sachs (NYSE:GS). But Monday, Wall Street woke up seemingly in a brand new world with all components UP about 1.5%.

Granted, the economic indicators have come in pretty much as expected with personal income and personal spending right on the number and construction spending and the ISM index slightly better than expected. And while we’ve seen details of a Greece bailout, Germany has not yet agreed to its role in the rescue, and there has been no news to alleviate concerns about Goldman Sachs and the Financials Sector.

Yet the market has rallied sharply, with Nasdaq closing up today 1.53% and the S&P up 1.31%.

The great flip-flop. Despite the lack of any significant news, last week saw an almost exact flip of sector, cap and style, completely opposite of the previous week’s behavior. The bellwethers of a classic flight to safety – Utilities, Healthcare and Consumer Staples – came in at the top of the performance list, and the best cap/style (Large-cap Growth, down -2.4%), was the worst of the week before. And yet today, Industrials and Technology Sectors, along with Consumer Discretionary, led the way.

It doesn’t seem to me like anything has occurred to change the tenor of the market that we described in last week’s newsletter (“Small Caps on a 12-Month Winning Streak”), but facts are facts.

Looking ahead. All this makes it difficult to predict the market’s next move, but I believe it is a stock picker’s market. Our only choice at this point is to be prudent, be cautious, and stay hedged. With regard to sectors, we think Energy, Healthcare, and Information Technology have the most stability and merit at this point, based on Sabrient’s forward-looking model.

Click here to see the Market Stats.

This week will bring us the very important full employment report (Friday) which could have an impact on the market. There is also the ADP employment report on Wednesday and the weekly initial jobless claims on Thursday. Taken together, these reports should provide us with a clearer view of how well the country is recovering from the recession.

4 Stock Ideas for this Week

This week, I went with Sabrient’s GARP preset search on MyStockFinder (http://MyStockFinder.com). The only adjustment I made to the preset search parameters was to up-weight Technicals slightly. Here are 4 new stock ideas from 4 different sectors that I found to be intriguing.

  • EZ Corp (Nasdaq: EZPW) – Financials
  • UFP Technologies (Nasdaq: UFPT) – Materials
  • SanDisk (Nasdaq: SNDK) – InfoTech
  • AmerisourceBergen (NYSE: ABC) – Healthcare