David Brown's  Instablog

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