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Market Reversal Finds Support At March Lows

Stock market tips by Marc Chaikin

The S&P 500 Index closed on Friday at 2,061.02, down 2.23% on the week. The small and mid-cap stocks continued to perform better than the large cap sector. The two most pressing factors on the stock market were the soft economic statistics and the weakness in the Dow Jones Transportation Index.

Wednesday's report from the Commerce Department of a 1.4% drop in durable goods orders vs. economists' expectations of a small rise, combined with a decline in capital goods orders, flamed fears of the effect of lower energy exploration and its effects on corporate profits.

The weakness in the Dow Jones Transports is of particular concern to technical analysts who like to see the Transports confirm the movement in Industrial stocks. With stocks like Fedex (NYSE:FDX), UPS Corp (NYSE:UPS) and key railroad stocks trading poorly, the idea that 1st quarter earnings will be a disappointment is gaining traction.

Analysts have been lowering their estimates for the S&P500 companies for 6 weeks now and they are down to the point where positive earnings surprises are more likely. The effect of weak capital expenditures and the strong U.S. dollar on large-cap stocks has been well advertised so this should not cause any major ripples when 1st quarter earnings are reported in 2 weeks.

This period leading up to earnings season should be one of backing and filling as we saw the past two weeks, with resistance at 2,100 and support at the March lows of 2,040. If those lows are broken, strong support exists in the 1,990 - 2,010 area.

Where Do We Go From Here?

The positive reaction to the Federal Reserve Board statement on interest rates, that pushed the S&P 500 above 2,100 two weeks ago, was reversed this past week as talk of interest rate hikes in the 2nd quarter of 2015 became more prevalent from Federal Reserve Presidents. Ignore all this chatter and focus on buying opportunities in strong Chaikin Power Gauge stocks in strong industry groups.

Our advice to buy weakness in the Health Care and selected Semiconductor stocks, like Skyworks (NASDAQ:SWKS) and NXP Semiconductor (NASDAQ:NXPI) was well rewarded. Health Care stocks with bullish Power gauge ratings, like Anthem Health (NYSE:ANTM) and AmerisourceBergen (NYSE:ABC) were standouts last week.

We still expect 2015 to be a positive year for stocks but with a bumpy ride to new highs. Selectivity will be paramount in keeping your portfolio positioned for profits in bullish stocks in strong industry groups. This is the wrong time to be staying with stale positions in stocks like Tesla (NASDAQ:TSLA) and Google (NASDAQ:GOOG) on the hopes of a rebound.

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