What the Market Wants: Good Start To A New Week

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Includes: DIA, IVV, QQQ, SPY, VTI
by: David Brown

Technology led today’s robust rally as the dollar continued to weaken. Financials, especially banks, remained strong the first three days of last week then fell to profit-taking on the final two days, ending down a little more than -0.5% for the week. Today, that sector regained all of that loss and advanced an extra 25 basis points to reach near multi-year highs, although it is still more than 50% off its early 2007 high.

From Bernanke’s comments today, investors gleaned that further monetary policy will remain in place (interest rates will stay low) despite improvements in employment. The S&P 500 responded with a +1.4% gain.

Last week’s pullback was mostly driven by weak Chinese economic releases along with poor European PMI readings. However, there was good news from domestic initial jobless claims which were lower than expected and at their lowest level in recent months.

It is interesting to note that during last week’s market weakness a number of companies reported well-above-expected numbers, but only those that also gave positive forward guidance actually were up. In fact, Tiffany (NYSE:TIF) missed estimated earnings but guided forward estimates higher and rose nearly +5% on the week. Other strong quarters that were greeted tepidly include Nike Inc. (NYSE:NKE), Oracle (NASDAQ:ORCL), and FedEx Corporation (NYSE:FDX). Financials that not only reported better-than-expected numbers, but also gained in price include Discover (NYSE:DFS), up +6%, and Accenture (NYSE:ACN), up +5%. So you either need to provide strong forward guidance or be a Financial or both to be treated well these days.

We continue to favor Large-cap stocks and the Financial sector, along with Technology. VXX continues to trade at historically low levels, and we favor it as a relatively low-risk hedge.

Here are the market stats.

4 Stock Ideas for this Market

This week, I created a custom search with MyStockFinder, emphasizing high value, high growth, long-term technical strength, high earnings quality, strong balance sheet, group strength, and only Large-caps. Here are four stock ideas for your consideration:

Discovery Communications, Inc. (NASDAQ:DISCA)–Cyclical Consumer
Dick’s Sporting Goods, Inc. (NYSE:DKS)–Cyclical Consumer
Valero Energy Corp. (NYSE:VLO)—Energy
Discover Financial Services (DFS)—Financials