What the Market Wants: Seeking a Reason to Rally

Black Friday was black in more ways than one, with a number of negative events. Still the market held up reasonably well.  Perhaps there’s nowhere else to get an acceptable return on one’s cash. At least the stock market has shown some strength, and valuations with a few exceptions are reasonable from a historic perspective.

By all accounts retailers did less than expected and did not have a great day, although the exception was online retailers who reported better than expected business.   On top of that, we got the surprising and very unpleasant news that Dubai World was seeking a stay on interest payments on its $60 billion of debt.

The market didn’t take either news very well, but on the other hand it did much better than one might expect.  Of course, it helped that the United Arab Emirates was quick to act in terms of guaranteeing bank deposits.  Keep in mind all this was preceded by other bad news.  We had a poor durable goods report earlier in the week, a downward revision in the previously announced GDP, and an announcement that institutional investor sentiment had surprisingly dropped over the past month.

The only good news was much less significant. Consumer confidence was slightly higher but still below 50.  Existing home sales were up, but new housing starts and permits had been down  earlier.  So frankly, I think it is fairly good news that the Large-cap stocks were down only 0.4% for the week.  Small-cap Value once again brought up the bottom, down 1.6%, and in all three caps, growth did somewhat better than value, although nothing to get excited about.

Sectors. The sector behavior was very much as anticipated by our forward sector analysis, with Healthcare, Utilities and Telecom leading the way with positive returns and Technology and Financials at the bottom of the scale.  The Financial Sector was obviously impacted the most by the announcement on Friday about Dubai World.

Click here to see the Market Stats.

Looking ahead, Telecom had an even better score than it had last week, based on a number of analysts revising their estimates upward in that sector as opposed to having a net decline the week before.  Consumer Staples jumped over Healthcare for the second position.  At the bottom is Consumer Discretionary, somewhat worse than Industrials and Materials.  Keep in mind that Materials will continue to do okay as long as the dollar continues to weaken.

Wrapping Up. It is difficult to make too much out of a shortened week with low trading, but it is significant that neither the action on Friday nor today’s behavior shows any serious panic over the Dubai situation or the poor retail sales on Friday.  I’m not in a strong bullish mood, but in my opinion it is somewhat better than one might have expected. The prudent investor should continue to shop for bargains, sell fully valued positions, and look for hedging opportunities.

4 Stocks Ideas for this Market

This week, I ran our proprietary MyStockFinder stock search tool (http://MyStockFinder.com) using the GARP (Growth at a Reasonable Price) pre-set search. However, I restricted it to large and mid-caps, and slightly up-weighted Technicals, Insider Buying, and Analyst Revisions.  Here are some of the particularly intriguing stock ideas from the stronger sectors:

Vivo Participacoes SA (NYSE: VIV)  - Telecom
Warner Chilcott LTD (Nasdaq: WCRX) - Healthcare
UniSource Energy Corp (NYSE: UNS) - Utilities
Validus Holdings (NYSE: VR) – Financials (Insurance)

Until next week,

David Brown
Chief Market Strategist
Sabrient Systems, LLC
Leaders in Investment Research
http://www.sabrient.com
and  http://Twitter.com/ScottMartindale

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

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.