June 14, 2010
Support Holds . . . But So Does Resistance
Since August 2009, with the exception of roughly nine weeks, the S&P 500 has stayed between strong support at 1040 and strong resistance at 1114, and it has been trapped in that range once again for the past month. Earlier today it was close again to testing resistance at 1114, but alas, it failed to break through and dropped back to 1089.
This is likely due partially to the mixed nature of last week’s economic reports. We had generally weaker-than-expected numbers for pure consumer credit and retail sales, but those were partially offset by a second consecutive week of improvement in initial jobless claims.
The uncertain global picture has stabilized somewhat with some improvement in BP’s handling of the oil spill and considerable stabilization of the euro from its position a few weeks ago.Also, China’s growth seems more certain than a few weeks ago. But mid-session today, there was news that Moody’s had downgraded Greece’s debt rating, and the S&P 500 seemed to lose its resolve to penetrate its 200-day moving average and slipped all the way back to 1089, ending the day with a -0.18% loss.
On the corporate front, reports are now few and far between but those we’ve seen have still been generally equal to or better than expectations. So we’re now faced with a decent corporate earnings picture domestically, but the muddled international picture is keeping the S&P 500 trapped between 1040 and 1114 and below its 200-day MA.
Cap/Styles & Sectors. The past week was extremely volatile, but in the end, the cap-styles settled for a small gain, led by Micro-caps (+3%), with the worst performance turned in by Large-cap Growth (+1.95%). Interestingly, the Cap-Style table reveals that Mid-caps have now led the past week, month, 3 months and 12 months. Value eked out a slight gain over Growth for most of that period and dominated in each cap-style last week.
Sector performance last week was very close to what we had forecast, with Materials and Energy in two of the top three spots. Financials did not fare as well as we expected, due to continued rumors regarding Wall Street reform. Consumer Discretionary and Consumer Staples were at the bottom as expected. If there was any surprise at all, it was that Technology finished dead last for the week, as the higher valuations in that sector were shunned by worried investors. We would expect Technology to do better in the weeks ahead. It is #5 in our forward-looking rankings, while Financials, Materials and Energy continue to be projected leaders by our forward-looking system.
Summer Doldrums. We are now in the dog days of summer. The upcoming week offers sparse economic data, with the CPI and PPI reporting midweek and the LEI and industrial production coming in late in the week. The likelihood of major corporate announcements is slight, since we are nearing the end of Q2.
During this likely “quiet period,” you should look for bargains created by the recent market weakness. Continue to hedge your portfolio and take profits on overvalued positions. (For some insight on a hedged portfolio, you might want to check out the Sabrient Investor’s (NYSE:H)Edge portfolio here.)
4 Stock Ideas for This Market
This week, I started with Sabrient’s High Growth preset search on MyStockFinder (http://MyStockFinder.com). Then, I narrowed it down to Mid and Large Caps and slightly upweighted Technicals. Here are 4 new stock ideas from a variety of sectors:
Until next week,
Full disclosure: The author does not hold any of the stocks mentioned in this week’s “Stock Ideas.”
About This Newsletter
Our goal in this newsletter is to use Sabrient’s quantitative methodology to provide the best hunting ground for styles, caps, and sectors for both longs and shorts – and to provide guidance in areas where you may want to be cautious versus aggressive in your portfolio. In the very near future, we will be using our FSYS platform to produce a look-ahead for the next 1 to 3 months of the most likely performance expected from these styles and caps.