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Chaikin Market Insights - March 22, 2014

|Includes:AMGN, BIIB, Brocade Communications Systems, Inc. (BRCD), DSW, DVMT, FSL, GILD, SSYS
Chaikin Market Insights ─ March 22, 2014Stocks Defy the Bears and Move to New Highs…What's in Store for Stock Prices?

The S&P 500 Index closed at 1,866.40, up 1.38% on the week. Last week's naysayers were proven wrong and the market weathered Federal Reserve Chairman Janet Yellen's first verbal fumble. Friday was an Index rebalance day for the S&P 500 and their associated Index funds, which caused some unusual movement in stocks with big buyback programs such as Express Scripts, Cisco and IBM. In addition Biotech stocks were slammed because of a letter which Rep. Henry Waxman sent to Gilead Science' CEO questioning the high cost of Gilead's Hepatitis C drug Sovaldi.

From a technical point of view the S&P 500 Index made a new intra-day high on Friday at 1,883.97 but failed, to close above a key resistance level at the 1,876 level. This was after a decent Thursday rally where less than 50% of the stocks were up. We may be in for a bit of backing and filling over the next week or so before an attempt at a breakout above 1,900.

With the Russell 2000 small cap Index leading the way and the transports gathering steam, look for buying opportunities on these dips instead of being scared by the more volatile market climate we have seen recently.

Where Are We Headed And What Sectors Will Lead The Stock Market?

There is strong support in the 1,835 - 1,855 area. Use pullbacks into support to accumulate stocks with bullish Power Gauge ratings. Buy these dips in anticipation of a rally to 1,900 or higher on the S&P 500 Index. Stay out of bearish Power Gauge stocks, particularly in the retailing sector and focus on strong stocks in strong industry groups.

A number of technology stocks which we have recommended in Market Insights such as Brocade (NASDAQ:BRCD), EMC Corp (EMC) and Freescale Semiconductor (NYSE:FSL) broke out to new highs this past week. These stocks can be bought on pullbacks.

The biotech stocks which had led the market to new highs experienced major selling late in the week. This was triggered on Friday by the comments in a letter from Rep. Henry Waxman to Gilead Sciences (NASDAQ:GILD) which we referred to above. With stocks like Amgen (NASDAQ:AMGN) and Biogen Idec (NASDAQ:BIIB) having just made new highs, these stocks were ripe for a pullback and profit taking set in. We would use this pullback, which in the case of BIIB was an excessive 9% on Friday, to buy these market leading stocks.

Weekly Sector And Select SPDR ETF Update

The Select SPDR Financial ETF (NYSEARCA:XLF) and the Select SPDR Technology (NYSEARCA:XLK) led the market to new highs while the Select SPDR Utility ETF (NYSEARCA:XLU) regained its footing after a dip following Fed Chair Janet Yellen's comments on Wednesday. The Select SPDR Consumer Discretionary ETF (NYSEARCA:XLY) continued to underperform the market, led by weakness in the retail stocks as well as the homebuilders.

Last Week's Featured Stock

Last week's bearish stock of the week, DSW Inc. (NYSE:DSW), closed at 37.58, down 5% for the week. The company reported revenues which failed to meet analyst expectations and guided lower for the current year.

Our bearish stock of the week from March 8, Stratasys Ltd (NASDAQ:SSYS), closed at 106.45 Friday, down 7% from our sell price. Both SSYS and DDD were negatively impacted by Hewlett Packard's announcement of an aggressive strategy to broaden their 3D Printer business. I reiterate what I said 2 weeks ago, SSYS and DDD are walking a high wire without a safety net. Use any rallies to eliminate these bearish Power Gauge stocks from your portfolio.