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What the Market Wants: Ambivalent Market Meanders Toward Year-End

The market ended last week in a good mood, but is still struggling to gain enough traction for a sustained breakout beyond 1100 on the S&P500. The question in everyone’s mind:  Is it simply consolidating in preparation for a big Santa Claus rally? There are certainly plenty of market observers on both sides of the fence.

On Friday, a better-than-expected employment report mitigated earlier concerns about Dubai and the lackadaisical retail sales of Black Friday, and the dollar also closed unexpectedly higher on Friday without cratering the market.  The small-cap bulls raced smartly ahead, generating profits for the week between 4 and 5 percent for the smaller stocks, regardless of style. Mid caps and large caps also did well, coming in with profits between 1 and 2 percent.  In fact, the S&P 500 reached as high as 1119 during individual trading days, although it never managed to close at a new 2009 high.

Today seemed like Groundhog Day with yet another bullish opening and a slightly bearish close.

Sectors.  As for sector performance, Utilities, Consumer Discretionary, Financials and Industrials were tightly packed at the top, each with returns of 3% for the week.  Energy was the only negative sector, down 0.5% for the week, probably in part due to the strengthening dollar.  All the other sectors were up a little over 1%.

Click here to see the Market Stats.

Looking ahead, Consumer Staples has regained first place in our SectorCast rankings, followed closely by Telecom and Healthcare, so note that cautionary sectors are the forward-looking favorites.   Industrials, Materials and Consumer Discretionary sectors remain below 50 on our scale, so it is probably best to avoid them.

Only slightly bullish. There is a slightly bullish tenor to this market, but the continuing high unemployment and ongoing problems within the Financial Sector are keeping any major breakouts in check.  Clear evidence of this is the serious resistance the S&P 500 has faced at about 1100. Since first approaching this level on October 14, the index has spent 25 of the following 35 market days crisscrossing 1100, reaching as high as 1119, as I mentioned earlier, but never closing above its 2009 high of 1110.6.

It is clearly not on a bullish roll, and Sabrient’s SectorCast model remains defensive, so I’ll repeat my cautious recommendations of the past weeks:  Look for bargains, sell fully-valued securities, and add hedges where appropriate. When looking for those bargains, keep in mind that Sabrient’s models suggest that the market wants growth, reasonable price ratios, and some component of momentum whether it be price, group or earnings.

For those who believe that this recent consolidation is more likely to break out in the traditional year-end rally — of which last week’s small-cap flurry might be the forerunner — I have used MyStockFinder to identify a few small-cap stocks for this market.

4 Stocks Ideas for this Market

This week, given the recent relative strength of small-caps, I ran our proprietary MyStockFinder stock search tool ( using the Small-Cap Momentum pre-set search (including micro-caps). Here are some of the particularly intriguing stock ideas from the stronger sectors:

Medifast (NYSE: MED) – Consumer Staples
Cogent Communications (Nasdaq: CCOI) – Telecom
RehabCare Group (NYSE: RHB) – Healthcare
China North East Petroleum (Amex: NEP) – Energy

Until next week,

David Brown
Chief Market Strategist
Sabrient Systems, LLC
Leaders in Investment Research

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.

Disclosure: The author does not hold any of the stocks mentioned in this week’s “Stock Ideas.”