The S&P 500 moved ahead 1.5% Monday, seemingly oblivious to multiple global threats, a shaky domestic economic recovery, and a market that is still weak by most technical standards.
This is the third consecutive up-day for the index, although it failed to cross back over its 50-day moving average. The S&P 500 now sits 3.5% below the three-year high it reached last month and is poised to break through the 50-day MA, although that may require a much bigger leap of faith than can be mustered, given the precarious nature of the world in which we live.
The threats are numerous. Japan’s tragic situation has turned into the world’s biggest nuclear threat since Chernobyl. The situation in Libya, while smaller in scale and human suffering, is very volatile, with the UN determined to protect the citizens of Libya while Gaddafi seems equally determined to keep them in chains. The threat from Portugal pales by comparison, but once again that country is on the brink of defaulting on its sovereign debt. The ripples of such a default could create something of an economic tsunami.
Then there is the murky economic picture on the domestic front.
The housing industry suffered another setback Monday, when existing home sales came in 125,000 units below expectations. This, after last week’s disappointing housing starts, down 22.5% in February, and permits, down 8.2%. Other disappointing numbers were industrial production, falling 0.1% in February, and a lower-than-expected LEI. The only positive economic news of note was Thursday’s Philly Fed overall manufacturing index, which showed a reading of 43.4, the highest since January 1984.
Maybe that glimmer of light is why the fear index—VIX—was down from its recent high, both short-term and long-term, although both are still well above where they were at the beginning of the year.
Market Stats. The market in general was down nearly 2% last week, with Small-cap Value being the best of the worst, down -0.8%, and Large-cap Growth, the worst of the worst, down -2.4%. Value led growth in all cap sizes.
Energy was the only positive sector (+0.36%), although Basic Industries was almost flat (-0.01%). The worst performers were Technology and Public Utilities.
Our forward-looking SectorCast got it right on the Consumer sectors, predicting that all three—Services, Durables and Non-durables—would be near the bottom last week and they were, all three losing more than -2%. Because of the volatility of oil prices, triggered by the Mideast situation, the sectors related to the price of oil and materials—Energy, Transportation, and Capital Goods—were well off the SectorCast predictions.
In these precarious times I would look for value-based stocks with good growth prospects, and I would stay with our top-ranked forward looking sectors: Basic Industries, Finance, Technology, Health Care, and Capital Goods.
4 Stock Ideas for This Market
This week I employed the GARP (Growth At a Reasonable Price) preset search in MyStockFinder (http://MyStockFinder.com). Here are four stock ideas from some of the higher ranked forward-looking sectors. Each one is a Sabrient Strong Buy and threatening a technical breakout.
Kraton Performance Polymers (KRA) – Basic Materials
Lincoln Electric Holdings (LECO) – Capital Goods
AMERIGROUP Corp. (AGP) – Healthcare
SandRidge Energy (SD) – Energy