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The market continues the decline that we talked about last week, with the S&P 500 losing nearly 1% for the week. Today, it was down quite a lot early on, but recovered enough to close at 1187.76, down just -.14%). Near-term support for the S&P 500 is 1180, but we breached that for a while today, and also breached the 50-day moving average most of the day. The next support level is at 1150.

It’s a matter of perspective, whether you see doom and gloom on the horizon or a possible boom from the QE2 infusion.

It’s easy to feel gloomy when we reflect on our country’s unemployment, weak banks, and the massive insider trading investigation that was announced last week. Last week’s economic releases did little to lift the gloom. Durable goods orders were much weaker than expected and so were new home sales (no surprise there). But the gloom increases when we look at the rest of the world.

Ireland was bailed out with 113 billion dollars this morning, but it is likely that the rest of the PIIGS will come to the trough and the euro will drop more than it already has. North Korea continues its saber-rattling, though the Wikileaks disclosures hint of China abandoning North Korea which could change that whole picture. Those (possibly criminal) leaks are shocking, to say the least. They give our voyeuristic side a glimpse of some revealing diplomatic shenanigans, some of which may be good for the world, but some disclosures are very, very scary, with the image of missiles flying everywhere.

If that isn’t enough to make you pull the covers over your head, think about the specter of inflation in China and that country’s rising interest rates. In our shrunken global economy, what happens in China doesn’t stay in China any more.

Little wonder that the VIX—the so-called “fear index”—rose last week and for the greater part of today.

But wait . . . if you’re standing on the ledge ready to jump, let me tell you a couple of good things.

Our dollar has strengthened over the past several weeks, amazingly, as the euro plummeted. This is quite interesting in light of the QE2’s infusions of $8-9 billion a day, which should be good news because that money is supposed to re-employ our workers. And last week, for the second consecutive week, initial jobless claims were better than expected. On Friday, we get the big employment report, which will tell us whether employment has improved, although it’s a little early to be optimistic. Oil prices are falling, so gasoline prices should start falling as well (we can only hope). Consumer sentiment was positive last week, and we get to check on that again tomorrow.

More good news. Holiday shopping appears to merrier than expected. On Black Friday and continuing through the weekend, U.S. consumers came out of the closet and suddenly started buying. Auto and truck sales have supposedly also improved, and we’ll find out for sure on Wednesday. That good news, though, will likely be offset, by the construction spending report, also on Wednesday, because it would be shocking if those numbers are anything but down.

Market stats. Small-cap Growth stocks were up +2.4% in the holiday-shorted week and have been a consistent winner for the entire past year. Large-cap Value were the worst (think: banks), down -1.15% last week, and these stocks have been very consistent losers for the entire past year. Indeed, Large-cap Value has underperformed Small-cap Growth by almost 20% over the past 12 months.

The sectors were an almost perfect reflection of the cap/styles. Consumer Services and Technology were the leaders, and as you might glean from everything else we’ve told here, Energy and Finance were at the bottom of the sectors, down -2.3% and -3.2% respectively.

Our forward-looking sector model continues to favor Technology (think: High growth with reasonable valuations); Finance (think: It can’t get much worse . . .); and good old Basic Industries. At the other end of the spectrum, our model doesn’t quite trust the consumer yet, so Consumer Services and Consumer Durables are near or at the bottom, along with Transportation.

It will be interesting to see how this week plays out. You decide whether it’s gloom or boom or something in between. If it’s gloom you feel, keep your money in cash; but if you’re a crazy-eyed optimist, the place to look is small caps. And here are some ideas for this market.

4 Stock Ideas for This Market

This week, given the recent strength in small caps, I started with Sabrient’s Momentum Small-Cap preset search on MyStockFinder (http://MyStockFinder.com) to identify Strong Buys that are on a roll in the current market climate. Despite my concern about the health of the market, below are 4 new stock ideas that might continue to zoom higher with a year-end rally:

CEVA, Inc. (NASDAQ:CEVA) – Technology
OneBeacon Insurance Group (NYSE:OB) – Financials
Innospec, Inc. (NASDAQ:IOSP) – Basic Industries
Jazz Pharmaceuticals (NASDAQ:JAZZ) – Healthcare

Source: Doom and Gloom, Or a QE2 Boom?