David Brown's  Instablog

Since the unemployment release of 10.2% on November 6, virtually all economic releases have been modestly positive and the late reporting companies have had strong results (including revenues) and strong guidance.  So why has the market been going up and down on a daily basis over the past week?

The short answer is the dollar.  Over the past several weeks, the market has seemed inversely tied to the value of the dollar. The dollar goes down, the market goes up; the dollar goes up, the market goes down.  Generally speaking, the dollar has gone down, and the market has gone up.

In fact, today as I write, we have reached a new high for the year for the S&P500, the Nasdaq, the Dow, and just about anything you want to name.  And sure enough, the dollar is down once again today.

Frankly, this inverse relationship between the dollar and the market is not that surprising since a weak dollar means more exports and fewer imports for the U.S. and higher material prices. That also explains the strength of large-caps over small-caps, since as general rule large-cap stocks have much more revenues from exports than small-caps.  Clearly, most major natural resource companies are also large caps.  At the November 7^th G-20 meeting, the leaders had pledged to continue to support the recovery until it is assured, and that has led to a weaker dollar.

Sectors & Cap/Styles. Last week was not a particularly exciting week, but once again, all cap/styles were up led again by Large-cap Growth (+2.5%) with Small-cap Growth (+0.8) at the bottom. Thanks to the weak dollar, Materials led the sectors, along with Technology, while sectors that normally are strong during recessionary pressures were at the bottom though still positive (think: Healthcare, Utilities and at times, Energy). As long as the dollar remains weak, this sector ranking is likely to continue.

Click here to see the Market Stats.

Our SectorCast forward-looking rankings are still biased in favor of Telecom, Healthcare and Consumer Staples, which means that our model is still “worried” about the recovery.  That is understandable in light of the high unemployment and continued financial concerns.

I recommend continued bargain-hunting (which is getting harder) in the large-cap and mid-cap segments and among the leading sectors in our forward rankings.

4 Stocks for This Market.

Excuse me for bragging on MyStockFinder, but the four stocks I presented to you last week did very well.  I hope you found an opportunity to get in.

This week, I ran our proprietary MyStockFinder stock search tool (http://MyStockFinder.com) using the Undervalued Large Cap Growth pre-set search. I’m staying somewhat conservative this week after such a big market move so far this month. However, I also included mid-caps, and I slightly up-weighted Technicals, Insider Buying, and Analyst Revisions.  Here are some of the particularly intriguing stock ideas from SectorCast’s strongest forward-looking sectors:

America Movil (NYSE: AMX) – Telecom
American Medical Systems (Nasdaq: AMMD) – Healthcare
Universal Corp (NYSE: UVV) – Consumer Staples
Petrobras (NYSE: PBR) – Energy

Until next week,

David Brown
Chief Market Strategist

SABRIENT SYSTEMS, LLC
Leaders in Investment Research
Follow us on Twitter: http://Twitter.com/ScottMartindale

Full disclosure:  Author does not hold any of the stocks mentioned in this week’s “4 stocks for this market.”

by David Brown, Chief Market Strategist, Sabrient Systems

(Monday, November 2, 2009, 5:45 pm Pacific) Volatility returned to the marketplace with a vengeance last week, and we should be prepared for more of the same this week. On Wednesday, Thursday, and Friday the market moved 2% or more – in opposite directions each day.  The S&P 500 was down 2% on Wednesday, up more than 2% on Thursday, and down again on Friday nearly 3%. Today (Monday) produced a bull-bear battle for where the market will go next. At this juncture, caution is in order.

Once again, the market was hardest on small caps, with Small-cap Value down 6.2% for the week. But no one was spared, with Large-cap Growth turning in the best, albeit negative, performance (-3.8%).  It seemed at times that the dollar was spawning market behavior, as market direction frequently was almost directly opposite the direction of the dollar – a weak dollar spawned the good day; a strong dollar spawned the bad days (a weak dollar, of course, spurs exports and limits imports, and a strong dollar does the opposite).

Another factor in the wild week was a very surprising and strong GDP figure for the most recent quarter, which was our first positive quarter in over a year.  It moved from -0.7% in Q2 to +3.5% for Q3.  To be sure, this was stimulated in part (or perhaps more than in part) by the cash-for-clunkers program and new home purchase tax credits.  The GDP figure was the stimulus behind the great Thursday market because it offset weakened consumer confidence reported earlier in the week.

Today, the volatility of last week seems to have been compressed into a single day.  The market opened strongly on positive ISM data and then fell to profit-taking and moved solidly into negative territory, with the S&P 500 breaking its 1040 support level. But in the end it closed strongly after all, leaving a slightly positive bias but mostly indecision (and fear) among traders.

Sectors. The strong sectors last week were Consumer Staples, Healthcare and Telecom, while the weakest sectors were Consumer Discretionary, Industrials and Financials. I will point out immodestly that these rankings were predicted almost exactly last week by the Sabrient SectorCast, our new forward-looking ranking system.

Here are the Sabrient weekly Market Stats.

It would be sheer folly to speculate on where the market heads now. Clearly, quarterly earnings were a positive factor, with 80% of reporting companies beating earnings estimates — and frequently even beating revenues estimates.  Most economic indicators, other than jobless claims, continue to show improvement, but negatives abound.  Unemployment is nearly 10%; our financial system underpinnings continue to be weak, as evidenced by the rash of banks closing last Friday, one of the highest numbers for the entire year; and the market has broken support.

All this leads to a quandary as to future direction.  Fortunately, at Sabrient, we try not to worry too much about market direction.  With our absolute return strategy, we concentrate on purchasing strong alpha stocks somewhat independent of the market while simultaneously hedging, using weak stocks, options or ETFs.

What Does this Market Want? Our forward-looking sector rankings are little changed at the top and bottom, so I would recommend that you stick to larger cap issues in the top three forward looking sectors (Telecom, Healthcare and Consumer Staples).  Beyond sector preferences, the market has a proclivity at this time for stocks that have strong value, positive momentum or are good candidates for turnaround. Revenue growth is preferred to making money only by cutting costs.

4 Stocks Ideas for this Market. This week, I ran a MyStockFinder search (http://MyStockFinder.com) using the Undervalued Large-Cap Growth preset search. I slightly up-weighted Technicals and limited the sectors to the three identified above. Here are four stock ideas that look intriguing:

AmerisourceBergen (NYSE: ABC) – Healthcare
Wellpoint (NYSE: WLP) – Healthcare
Rogers Communications (NYSE: RCI) – Telecom
Archer Daniels Midland (NYSE: ADM) – Consumer Staples

Until next week,

David Brown
Chief Market Strategist

SABRIENT SYSTEMS, LLC
Leaders in Investment Research
Follow us on Twitter: http://Twitter.com/ScottMartindale

Full disclosure:  Neither Sabrient, David Brown nor Scott Martindale holds any of the stocks mentioned in this week’s “4 Stocks to Consider.”

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Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

by David Brown, Chief Market Strategist, Sabrient Systems

(Monday, October 26, 2009  4:45 pm PDT)  Last week, the market was very selective with only Large-cap Growth in positive territory -- think Apple (Nasdaq: AAPL), Amazon (Nasdaq:  AMZN), and American Express (NYSE: AXP). All other cap/styles were negative -- and the smaller you were, the more you lost. IIn fact, this entire month the market has beat up on small-caps with its “the smaller you are, the more you lose” bias.

It was an odd week. Economic indicators were mixed, with the usual villain, the initial jobless claims report, disappointing us once again. To be sure, there was much positive news from reporting companies, but revenue growth was again spotty, although better than last quarter. The disappointers include Boeing (NYSE: BA), Northern Trust (Nasdaq: NTRS), Terex (NYSE: TEX), and USG Corp. (NYSE: USG). Seven more banks failed on Friday, and a rather significant player in the commercial real estate field, CapMark, filed for bankruptcy.

So even though 80% of the reporting companies in the S&P500 beat estimates, the disappointing companies and bank failures dragged the market down. Today,  Monday, started out with a bang and then went bust well before noon when the dollar made another strong move. The market sold off sharply afterward.

Sectors. Last week within sectors, Information Technology was the only positive sector (again, think Apple and Amazon). Consumer Discretionary sort of broke even, and all other sectors were down more or less 1%.

Looking ahead, our new sector ranking system has Telecom at the top, based on very attractive valuations, followed closely by Health Care and Consumer Staples, which  makes us feel that the market is still worried about recession. Energy, Industrials and Consumer Discretionary bring up the bottom, which reinforces our recessionary worries.

Lest I leave you on a negative note, it is important to remember the significant improvement in the quarterly reports so far for Q3, including the major breakout quarters by  Apple and Amazon. So  in my opinion, we’re at a point where the bulls and bears are locked in a fierce battle that is too close to call. I continue to recommend the prudent buying of bargains, but now, on the strength of these robust Q3 earnings reports, you might consider an aggressive investment or two.

4 Stocks to Consider.  This week, I ran a MyStockFinder search (MyStockFinder.com) looking for small stocks that might be well-positioned to participate in a year-end rally. I started with the Small Wonders (micro-caps) preset search but also included Small Caps, and up-weighted Technicals and Momentum, as well as Group Strength. I also asked for higher beta stocks, i.e., stocks that tend to rise and fall more than the overall market. Here are four stock ideas that look intriguing:

KMG Chemicals (Nasdaq: KMGB) - Materials
K-V Pharmaceutical (NYSE: KVA) – Healthcare
Zhongpin Inc. (Nasdaq: HOGS) – Consumer Staples
Famous Dave’s of America (Nasdaq: DAVE) – Consumer Discretionary

David Brown
Chief Market Strategist, Sabrient Systems
 
Full disclosure:  David Brown does not hold any of the stocks mentioned in this week’s “Stocks to Consider.”

By David Brown, Chief Market Strategist, Sabrient Systems, LLC

(Monday, October 19, 2009  6:45 pm)  On Monday of last week, I posed the question whether the market was about to break out or top out, and for most of the week breaking out seemed the likelier outcome. The plethora of positive earnings, together with better-than-expected revenue from a number of major players -- Google (Nasdaq: GOOG); JP Morgan (NYSE: JPM); Intel (Nasdaq: INTC), among others -- fueled the market onward with the Dow crossing 10,000 and the S&P 500 approaching 1,100.
 
The economic indicators were generally good as well, with slightly improved new jobless claims, a very pleasant surprise in improved retail sales, and even the manufacturing sector looking up with a much better-than-expected Empire State Manufacturing Index release on Thursday.
 
However, the market fell sharply on Friday when the Bank of America (NYSE: BAC) stunned us with a billion dollar loss which highlighted serious credit losses. That, together with poor revenues reported by such giants as IBM (NYSE: IBM) and GE (NYSE: GE), raised once again the ugly specter of our high rate of unemployment and the shaky underpinnings of our entire financial system. All this raised the issue of the market topping out once again.

Today (Monday, the 19th) the market seems to have returned to its more euphoric behavior with the S&P 500 straddling the 1,100 mark and the Dow up nearly another 100 points.  Encouraging statements about strength in China and continued positive earnings releases set the positive tone. And after the bell, Apple (Nasdaq: AAPL) had a blowout report, sending its share price above $200.

Style/Caps & Sectors.  Despite the market's drop on Friday, all style/caps except for Small-cap Value (-0.06%) were positive for the week, led by Large-cap Value (+1.5%).  All ten sectors were positive as well. Fueled by the continued decline of the dollar, Energy and Materials led the way with Energy up nearly 5% for the week and Materials up 3%. Consumer Staples took the third spot. Not unexpectedly, the Financial Sector turned in the worst performance but was still positive at +0.3%.

Two energy industries, not surprisingly, showed up in the top five -- Energy Equipment & Services (+5.6%) and Oil & Gas Consumables (+4.8%) – but the leading industry of the week was Leisure Equipment and Products (+6.4%). An indication perhaps that we’re breaking out of the recession?  On the other hand, anything with real estate in its name was down on continued fears about the commercial real estate market.

As earnings reports are released this week, I continue to remain short-term cautious, in spite of Apple’s glowing report. There are still high quality stocks selling at reasonable prices, but be prepared for a pullback from this technically important level, especially due to our concerns about unemployment and financial underpinnings.

Click here to see the Market Stats.

4 Stocks to Consider. This week, I ran a MyStockFinder search (MyStockFinder.com) using the Small Wonders (micro-caps) preset search, but I also included Small Caps, and slightly upweighted Technicals and Insider Buying. Here are four stock ideas that look intriguing:

Constellation Energy Partners (NYSE Arca: CEP) – Energy
Five Star Quality Care (AMEX: FVE) – Healthcare
International Assets Holding (Nasdaq: IAAC) – Financials
VisionChina Media (Nasdaq: VISN) – Consumer Discretionary

Disclosure: No positions

(Monday, October 12, 2009  4:55 pm)   All major indices closed at or very near 2009 highs on Friday as the week featured a combination of better-than-expected economic news and a sprinkling of early earnings announcements on the plus side. From a technical perspective, the market is extended as the Dow reaches for 10,000 and the S&P500 aims for 1,100. Will it breakout now…or take a breather and wait for good earnings reports to provide the fuel to propel it?  This week should provide some clues.

New jobless claims dropped on Friday, representing the best of the good surprises, and a positive ISM report and early month-over-month strong retail reports fueled a 4% (large-cap) to 6% (small-cap) surge in market prices.   Value stocks did a little better than growth last week, but both were quite robust. 

Sector Performance. With regard to sectors, weakness in the dollar sparked a 9% price gain in the Materials sector, which, together with Energy (+7%) and Financials (+6%), topped the performance list, but all were in the black.  Consumer Staples, at the bottom, was still up nearly 3%, as were Utilities and Health Care.  These three sectors had been the leaders of the past few weeks in which recessionary caution had threatened to abort the rally which began in March. 

The breadth of the market rise was best demonstrated by the fact that even the worst industry, Biotechnology, was up about 1%.

Important Week Ahead.  This week’s corporate news will be a bellwether of the market’s trend, as a number of large market-moving companies make their third quarter earnings announcements.  These include on Monday (today), Schwab (Nasdaq:  SCHW); Tuesday,  Intel (Nasdaq: INTC) and Johnson & Johnson (NYSE: JNJ); Wednesday, JP Morgan (NYSE: JPM) and Abbott Labs (NYSE: ABT); Thursday, Advanced Micro Devices (NYSE:  AMD) and Citigroup (NYSE: C) (Thursday) .  Of course, many others will also be announcing, but this group has the ability to set the pace.

In addition, several new economic reports will be key to near-term stock performance.   On Wednesday, look for a crucial sales report, and on Thursday, a highly anticipated CPI report and more jobs data, followed by the Capacity Utilization Report on Friday.

The Sabrient SectorCast.  As of today, our forward-looking SectorCast continues to rank Consumer Staples, Utilities and Health Care at the top, reflecting concerns of valuation in the lower sectors.  This concern coupled with a paucity of upward EPS revisions placed Telecom, Materials, and Industrials at the bottom of the rankings.   Here is a look at the SectorCast rankings and other market stats.

Especially due to the upcoming news this week, I recommend a continuation of a cautionary stance, taking profits on fully valued issues, looking for bargains, and where appropriate, hedging the downside.

4 Stocks for This Market.  This week, I ran a MyStockFinder search (MyStockFinder.com) using the GARP (Growth At Reasonable Price) preset search, with Technicals upweighted. Here are four stocks ideas from the top-ranked sectors that look intriguing:

Costco Wholesale (Nasdaq: COST) – Consumer Staples
Hawaiian Electric (NYSE: HE) – Utilities
Hi-Tech Pharmacal (Nasdaq: HITK) – Healthcare (Biotech)
PartnerRe (NYSE: PRE) – Financials (Insurance)

Until next week,

David Brown
Chief Market Strategist

SABRIENT SYSTEMS, LLC
Leaders in Investment Research
Follow us on Twitter: http://Twitter.com/ScottMartindale

Full disclosure:  Neither Sabrient, David Brown nor Scott Martindale holds any of the stocks mentioned in this week’s “Stocks for this Market.”

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Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

(Monday, October 5, 2009 - 5:18 pm PDT)
Today felt like Groundhog Day. Whereas in last week's newsletter I called the market "a mirror image" of its previous week, today it's the opposite. As I review last week's market performance, it's hard to find any changes from the prior week. In fact, last week virtually repeated the previous week's style/cap performance, with  Small-cap Value the worst, losing 3.4%, and Large-cap Growth, the best, down 1.3%.

It was a week of mixed economic data. On the one hand, we had a positive GDP revision and positive consumer spending; on the other hand, there was a very poor and unexpected increase in jobless claims, along with the continuing rise in unemployment to a worrisome 9.8%. And if that wasn't enough, consumer confidence fell as well. Already in a negative mood, the market responded with a virtual repeat of the previous week's pattern.

Sectors & Industries Reflect Recessionary Worries.  Not surprisingly, Consumer Staples was the only positive sector for the week, up 0.6%. This is normal behavior in a market that is worried about recessionary forces. For similar reasons, Health Care was second best, down 1.0%. Industrials turned in the worst performance, losing 3.5%, with Energy not much better.

Recessionary worries were reflected in the industry performance as well, with Beverages up 1.8% (can't do without our soft drinks). Personal Products was second, up 1.3%, led by Bare Escentuals (Nasdaq: BARE) and Kimberly-Clark (NYSE: KBM). Household Durables was by far the worst industry, down almost 6%.

Our new forward-looking SectorCast Rankings show Consumer Staples, coincidentally, in the top spot.  Also somewhat not surprisingly, Utilities is ranked second and Health Care is third. Similarly, our new system grades Materials the lowest, with Industrials and Consumer Discretionary just slightly higher. Note that the Materials sector scored at the bottom, partially due to fairly high valuations versus mediocre projected earnings changes. This also reflects a lack of confidence in the marketplace for a significant economic recovery soon. (You can see the SectorCast rankings and other market segment stats at the Sabrient website:  sabrient.com)

Market Rallies. Today, a strong recommendation on large-cap banks by Goldman Sachs has sent the market in a frenzied upward rally, very much like the news of a handful of mergers did last Monday. Last week, Monday was the only positive day, and, it remains to be seen whether we repeat the rest of the pattern this week since there is little new news.

Earnings season begins mid-week, and as you might expect this is a critical earnings season. The market will be watching very closely for not only meeting earnings expectations, but also increased revenue.
 
I recommend a cautious attitude, as I have for the past several weeks. Be willing to take profits on fully valued companies and prudently shop for bargains during pull-backs, while considering hedges against a continued market downdraft.

4 Stocks to Consider.   One of last week’s picks, VimpelCom (NYSE: VIP) got a big 10% pop today on a merger announcement.

This week, I ran a MyStockFinder search (MyStockFinder.com) using the Hidden Gems preset search. These are smaller cap stocks that are flying “under the radar” of many analysts. Here are some stock ideas that look intriguing:

Almost Family, Inc. (Nasdaq: AFAM) – Healthcare (Healthcare Facilities)
EZCORP, Inc.  (Nasdaq: EZPW) – Financials (Consumer Finance)
GT Solar International (Nasdaq: SOLR) – Industrials (Capital Goods)
Universal American  Corp. (NYSE: UAM) – Healthcare (Healthcare Providers)

Until next week,
 
David Brown
Chief Market Strategist
Sabrient Systems
sabrient.com

Full disclosure: No positions.