What The Market Wants: Walmart-Gate

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 |  Includes: DIA, IVV, NFLX, QQQ, SPY, VTI, WMT
by: David Brown

Walmart-Gate, Dutch-Gate, Netflix-Gate, Exit-Gate!

This could be the "exit gate" but probably not. Over the weekend, the New York Times released a blockbuster story about Walmart's (NYSE:WMT) alleged massive cover-up of serious violations of the U.S. Foreign Corrupt Practices Act involving more than $24 million dollars in bribes to accelerate store openings and bypass permit and zoning practices. The stock was down 4.55% today, at $59.54.

Netflix (NASDAQ:NFLX), after meeting estimates, indicated that growth would be slow in future quarters, sending the stock down more than 15% in aftermarket trading.

The Dutch Prime Minster offered to resign after budget talks collapsed over the weekend. The move could cost the Netherlands its AAA credit rating and put increased pressure on Europe's sovereign debt crisis. Further worsening the Europe issue, Sarkozy failed to win France's presidential election, forcing him into a runoff with Socialist Francois Hollande, whom he trails in most polls by substantial margins. Hollande seems determined to undermine the Eurozone pact to protect the sovereign debt of the PIIGS. Some weekend! I don't recall a weekend with an overall worse picture on so many fronts.

Apparently, the market felt the same way, with the S&P 500 falling nearly 20 points shortly after the open, but then recovering a bit throughout the day to close down about 12 points or nearly 1%. The SPY is now down nearly 5% from its high on April 2.

But again, this is hardly enough to cry "run for the exits." Monday's earning announcements were more positive than negative by far. This week, nearly a third of S&P 500 companies will report first quarter earnings, so Monday's trend must stay in place with no whoppers to avoid serious damage. In addition, this week's economic releases must include no big negative surprises. Consumer Confidence tomorrow must be stable; Durables Good orders on Wednesday must be okay; Initial Jobless Claims on Thursday should at least hold steady; and then finally, on Friday, the advance GDP number for Q1 must be inline (2.5% is expected), and Michigan Consumer Sentiment needs to confirm tomorrow's expected reading.

If all of that comes off, along with some stability in Europe, we could rally back a bit, but if we get any bombshells, the exit gates are waiting. Meanwhile, there are still bargains out there. Some of them are being seized by insiders (see below), and we remain convinced that hedging, by shorting some combination of the European ETFs VGK, IEV or EWP, is one reasonable way to build a portfolio for this environment.

Here are the market stats.

4 Stock Ideas for this Market

This week, I used the Insider preset search in MyStockFinder. The following stocks have high insider purchases, and you may find HUM and POL particularly interesting with their earnings dates on the horizon.

Humana Inc. (NYSE:HUM)-Healthcare (Earnings reported April 30)
Actuant Corporation (NYSE:ATU)-Industrials
RLJ Lodging Trust (NYSE:RLJ)-Cyclical Consumer
PolyOne Corporation (NYSE:POL)-Basic Materials (Earnings reported May 3)