26
Oct
2009

What the Market Wants: Market Bullies the Small-caps

Last week, the market was very selective, with only Large-cap Growth in positive territory -- think Apple (Nasdaq: AAPL), Amazon (Nasdaq:  AMZN), and American Express (NYSE: AXP). All other cap/styles were negative -- and the smaller you were, the more you lost. In fact, this entire month the market has beat up on small-caps with its "the smaller you are, the more you lose" bias.

It was an odd week. Economic indicators were mixed, with the usual villain, the initial jobless claims report, disappointing us once again. To be sure, there was much positive news from reporting companies, but revenue growth was again spotty, although better than last quarter. The disappointers include Boeing (NYSE: BA), Northern Trust (Nasdaq: NTRS), Terex (NYSE: TEX), and USG Corp. (NYSE: USG). Seven more banks failed on Friday, and a rather significant player in the commercial real estate field, CapMark, filed for bankruptcy.

So even though 80% of the reporting companies in the S&P500 beat estimates, the disappointing companies and bank failures dragged the market down. Today,  Monday, started out with a bang and then went bust well before noon when the dollar made another strong move. The market sold off sharply afterward.

Sectors.  Last week within sectors, Information Technology was the only positive sector (again, think Apple and Amazon). Consumer Discretionary sort of broke even, and all other sectors were down more or less 1%.

Looking ahead, our new sector ranking system -- SectorCast -- has Telecom at the top, based on very attractive valuations, followed closely by Health Care and Consumer Staples, which  makes us feel that the market is still worried about recession. Energy, Industrials and Consumer Discretionary bring up the bottom, which reinforces our recessionary worries.

Click here to see the Market Stats.

Lest we leave you on a negative note, it is important to remember the significant improvement in the quarterly reports so far for Q3, including the major breakout quarters by  Apple and Amazon. So  in my opinion, we’re at a point where the bulls and bears are locked in a fierce battle that is too close to call. I continue to recommend the prudent buying of bargains, but now, on the strength of these robust Q3 earnings reports, you might consider an aggressive investment or two.

4 Stocks to Consider

This week, I ran a MyStockFinder search (http://MyStockFinder.com) looking for small stocks that might be well-positioned to participate in a year-end rally. I started with the Small Wonders (micro-caps) preset search but also included Small Caps, and up-weighted Technicals and Momentum, as well as Group Strength. I also asked for higher beta stocks, i.e., stocks that tend to rise and fall more than the overall market. Here are four stock ideas that look intriguing:

KMG Chemicals (Nasdaq: KMGB) - Materials
K-V Pharmaceutical (NYSE: KVA) – Healthcare
Zhongpin Inc. (Nasdaq: HOGS) – Consumer Staples
Famous Dave’s of America (Nasdaq: DAVE) – Consumer Discretionary

Until next week,

David Brown
Chief Market Strategist

SABRIENT SYSTEMS, LLC
Leaders in Investment Research
Follow us on Twitter: http://Twitter.com/ScottMartindale

Full disclosure:  Neither Sabrient, David Brown nor Scott Martindale holds any of the stocks mentioned in this week’s “4 Stocks to Consider.”

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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.

What the Market Wants
david / Tag: AAPL, AMZN, AXP, BA, CapMark, energy, healthcare, HOGS, KMGB, KVA, NTRS, sectors, TEX, USG /