Stocks Seek a Catalyst

|
Includes: DIA, QQQ, SPY
by: David Brown

Today saw the S&P 500 continue to slide slowly from its recent three-and-a-half-year high. The index closed at 1329.47, down -0.62%.

Why the continued slide? We could blame it on the disappointing news out of Europe last week about the debt crisis of the PIIGS (Portugal, Ireland, Italy, Greece, and Spain), the most recent manifestation being the riots in Greece. The weekend’s rather sordid news about the head of the International Monetary Fund (IMF) didn’t help matters, and there wasn’t much in the way of economic reports or corporate earnings to change the market’s mood.

In general, last week’s economic numbers were slightly less than expected, but that’s not a really big deal. The earnings season ended with significant disappointments from Cisco (NASDAQ:CSCO) and Disney (NYSE:DIS). Oil prices dropped several percent last week, while, somewhat surprisingly, the dollar strengthened, rising about +1%. The fear index, the VIX, fell slightly below its Bin-Laden related level, and continues to hover at historically low levels.

Market stats. For the second consecutive week, the market slightly rewarded mid-cap growth stocks, up +0.64%, while Large-cap Value, the bastion of flights-to-safety, was off, -0 .25%. (Here are the market stats.)

As for sectors, the leader was Health Care (+1.77%), which continues to be one of the safer havens in past weeks. The three consumer sectors each gained about +1%, continuing their surprising show of strength. Finance (-1.55%) and Basic Industries (-2.62%) were the worst of the lot, with falling oil prices pushing Energy down to third-worst performance (-1.53%).

Despite the good performance of the consumer sectors last week, our forward-looking SectorCast continues to forecast them at or near the bottom of the forward rankings; and indeed today, the market agreed with the consumer sectors ending up in the bottom five.

Coming up. We have a number of important economic reports this week. The housing market index, reported today, was unchanged from last month, but the Empire Manufacturing Index was sharply lower at 11.9 versus the estimated 18. Tomorrow we’ll get a broader look at the housing market with housing starts and permits (Tuesday) and existing home sales (Thursday). Other important reports include industrial production stats on Tuesday, FOMC minutes on Wednesday, and on Thursday, the Philly Fed report, leading indicators, and the weekly initial jobless claims, which has had several weeks of disappointing data.

It’s hard to say with any confidence what the market favors. Perhaps the upcoming economic reports and further developments in Europe will give us a better feel for market direction. Meanwhile, I would recommend caution. Well-priced stocks in the Health Care Sector would be one possibility; others would be carefully chosen technology stocks or the usual safe haven, public utilities.

4 Stock Ideas for this Market

This week, I started with the GARP (Growth at a Reasonable Price) preset search in MyStockFinder and restricted the search to the higher ranked sectors. I then included Buys (in addition to Strong Buys). Here are four stock ideas that seem to be holding up during market turbulence:

CF Industries Holdings (NYSE:CF) – Basic Industries
AMERIGROUP Corp (AGP) – Healthcare
Power-One, Inc. (NASDAQ:PWER) – Technology
Avnet, Inc. (NYSE:AVT) – Capital Goods