What The Market Wants: The Continuing Conundrum

Includes: DIA, QQQ, SPY
by: David Brown

Another week of the same. Another day of the same. The news last week was generally positive with initial jobless claims remaining in the 350K area, slightly beating estimates. Existing home sales were up but not quite as much as expected. On Friday, the Michigan Consumer Sentiment was better than expected, and more importantly, new home sales were also better than expected although a tad below last month’s reading.

Earlier this week, pending home sales doubled expectations rising +2%, much better than last month’s drop of -1.9%. Europe continued to make progress causing the dollar to slip a bit against the global currency basket which is generally good for the market. Corporate reports were mixed with several disappointments, including Nvidia (NASDAQ:NVDA), but there were a roughly equal number of positive surprises.

All of that added up to a slight gain in the market–the S&P 500 was finally able to stay above 1350 for an entire week, Nasdaq gained about +0.5% but stayed below 3000, and the Dow finally broke above 13000 but failed to hold it, closing at 12,983, up about 30 points. The leading style/cap last week was Large-cap Growth, up a mere +0.82%, while the worst was Small-Cap Value, down -0.79%. The sectors performed fairly well led by Basic Materials (+1.65%), Energy (+1.52%), and Technology (+0.91%) with Consumer Cyclicals, Financials, and Telecommunications all off a small amount. Looking forward, Heathcare and Basic Materials remain favorites while Utilities and Telecom trail.

Here are the market stats.

So, clearly the market is merely inching forward as it remains stalled near recent highs. It will likely continue this behavior until a significant event or announcement pushes it one way or the other depending on the nature of the event.

It’s best to maintain a portfolio of well-priced growth stocks with a hedge as we have discussed in our letters for the past month. Our Baker's Dozen of top stocks for 2012, released at the opening of the market year, is up nearly 19%, so it has been profitable to be completely long. Nonetheless, dangers lurk.

4 Stock Ideas for this Market

This week, I created a custom search with MyStockFinder, emphasizing high value, high growth, high earnings quality, momentum and high dividend yield. Here are four stock ideas for your consideration:

VOXX International Corp. (NASDAQ:VOXX) - Technology
Terra Nitrogen Company (NYSE:TNH) - Basic Materials
Banco Macro SA (NYSE:BMA) - Financials
Southern Missouri Bancorp Inc. (NASDAQ:SMBC) - Financials