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As we wind down the summer doldrums, are we heading toward another low-volume August? Monday was one of the lowest volume sessions of the year on the NYSE. Kids are returning to school in some parts of the country already, and many portfolio managers and traders will begin returning to their desks. But what they are finding in the market this week is quite different than they would have seen last week.

At this time last week, the market was creeping on an upward trajectory on low volume, and the S&P 500 was above its 50- and 200-day moving averages. But I cautioned that it was too early to declare that the bulls were home free and that the market seemed to be in a wait-and-see attitude from Bernanke and the FOMC.

Here is how it unfolded. After the usual volatility before and after the FOMC report on Tuesday, traders seemed to be celebrating the Fed’s announcement. But Wednesday launched a precipitous decline that briefly found support at the 50-day MA (for at least the S&P 500 and Nasdaq 100), but then sold off further on Thursday. It was exacerbated by disappointing data from China and Japan, and a somber outlook for Europe. Some of the retailers gave disappointing outlooks, and there was a flight to safety as treasuries and gold firmed up and the dollar put in a weekly gain of 3.1%. On Friday the market finished down nearly 4% on the week.

There aren’t many high-impact economic reports this week. Today we saw the NY Fed Manufacturing Index and NAHB Housing Market Index, both of which disappointed a bit but didn’t really show much impact. On Tuesday, we’ll see Core PPI, Industrial Production, and Capacity Utilization. Wednesday brings Crude Inventories; and then Thursday reveals Continuing Jobless Claims, Philly Fed Index, and Leading Economic Indicators (NYSEMKT:LEI).

On the earnings report front, Lowe’s (NYSE:LOW) missed slightly but didn’t sell off any further than it already has. InterOil (NYSE:IOC) beat estimates and is up afterhours today. For the rest of the week, possible market movers include Wal-Mart (NYSE:WMT), Applied Materials (NASDAQ:AMAT), Dell (NASDAQ:DELL), Hewlett-Packard (NYSE:HPQ), and Gap Inc. (NYSE:GPS). This is also options expiration week, which could add some volatility to the market.

Market Stats. Last week, the larger caps held up much better as the market sold off, as you would expect. Large-cap value was down the least at -3.6%, while the worst performer was small-cap growth, down -6.3%. For the past four weeks, small caps have lagged mid caps and large caps by a large margin.

Utilities and Consumer Staples held up the best as normal safe-haven sectors, and the more economically-sensitive sectors — Consumer Discretionary, Info Tech, Industrials, Financials, and Energy — led the way down. The Materials Sector was supported a bit by the flight to the safety of gold.

Click here to see the market stats.

Our forward-looking sector model still places Financials in the top spot, with Information Technology and Industrials in the second and third spots. Healthcare has slipped a bit on some cautionary revisions for some of the stocks. At the bottom is Consumer Discretionary, preceded by Consumer Staples and Telecommunications. The continued low relative ranking of Consumer Discretionary is a cautionary signal regarding improvement in the economy.

Investors should continue to shop for bargains in the top ranked sectors and close positions that might be fully valued given their fundamental outlook. You also might implement portfolio hedges where appropriate. (Note that Scott Martindale wrote a blog post last week about “Hedging a Stock Portfolio” that might interest you: http://sabrient.com/blog/?p=1808.)

4 Stock Ideas for This Market

This week, I’m sticking with a conservative stock search by starting with Sabrient’s Undervalued Large Cap Growth preset search on MyStockFinder (http://MyStockFinder.com). I added in Mid Caps to the mix, and slightly up-weighted Technicals. Here are 4 intriguing stock ideas:

Ameriprise Financial (NYSE: AMP) – Financials
Veeco Instruments (Nasdaq: VECO) – InfoTech
HealthSpring (NYSE: HS) – Healthcare
Alliant Techsystems (NYSE: ATK) – Industrials

Source: Heading Toward Another Low-Volume August?