WHAT THE MARKET WANTS: It's a Tortoise, Not a Hare
The market continued to inch ahead today, with the S&P 500 taking another aim at the 18-month high of 1180 which it reached last Thursday before backing off a bit on Friday. The only thing nudging the market forward seems to be the lack of anything really negative. The economic releases over the past week and today were either at or slightly above projections, and we seemed to have dodged the bullet on a couple of portentous events.
For example, the poor consumer sentiment reading by the Conference Board in February seems to have been anomalous, and it appears that progress is being made in the Greece-related problems in Europe that will likely preclude any long-term negative effect.
That said, the gains made by the market were small. The leading cap-style last week was Small-cap Growth, up just +0.78% while Large-cap Growth, the poorest performer, turned in a slight gain of 0.47%. So while the market may be moving forward, it’s playing the role of the tortoise, not the hare – slowly but steadily moving forward on the impetus of almost a full year of small consistent improvements among economic indicators and reported corporate earnings. A normally bearish sign is the historically low levels of mutual fund cash, but that needs to be considered in light of significant disintermediation of money flows from open-end funds into ETFs.
The tortoise-like pace seems appropriate, as one can hardly be a hare in light of the major problems we continue to face. We have a very serious unemployment situation in our country, as well as globally; country debt levels, including our own, are at historically high levels; and rumbling in the background are the ever present global political unrest and the large-scale human disasters caused by the recent earthquakes in Haiti and Chile. And on top of all that, many technicians believe the market is still overbought and in need of a pullback or lengthy consolidation. So the tortoise should keep his head out of his shell and be diligent.
Market Stats. If you’ll take a close look at the market stats, you’ll note that small-caps were the leading cap-styles last week, last month and for the entire first quarter, which completed its final full week on Friday.
Click here to see the Market Stats.
Sectors continue to confuse the tortoise. Once again our forward-looking scores favor Energy, despite its finishing at the bottom of last week’s sector returns. Today, Energy led the way . . . go figure. Financials remained strong, while Telecom, which performed poorly last week as predicted, is rated the second best in our 30-day-forward-looking scores. Consumer discretionary, predicted to underperform two weeks in a row, actually led last week.
What we can take from this? Favor strong stocks, properly valued and don’t worry too much about sectors at this time.
What this Market Wants. As I’ve mentioned in the past weeks, valuations remain moderate in general with extended valuations here and there. So I would again recommend taking profits on overvalued stocks and seeking out bargains, because they’re still out there. This is probably not the time to take dollars off the table – in other words, I would stay conservatively long for now.
4 Stock Ideas for This Market
This week, I again stuck with the more conservative Undervalued Large Cap Growth preset search on MyStockFinder (http://MyStockFinder.com). Then, I asked for both Buys and Strong Buys, and up-weighted Technicals slightly. Here are 4 new stock ideas from 4 different sectors that I found to be particularly intriguing. Note that there are several defense contractors that score highly in this search and have strong charts.
Unum Group (NYSE: UNM) – Financials
Gilead Sciences (Nasdaq: GILD) – Healthcare
CVS Caremark (NYSE: CVS) – Consumer Staples
Raytheon (NYSE: RTN) – Industrials
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 personally 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 their personal financial 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.