WHAT THE MARKET WANTS: Monday Mania Rides Again

Forget that the market was down for the fourth consecutive week on Friday.  Investors woke up in a new world today and sent the market soaring.   It is Monday, after all.

After last week’s manic Monday, the market ended the week down big-time, with Large-cap Value the best performer at - 1.5% and Small-cap Growth the worst at -2.7%.   There has been a lot of good and bad economic data the last several days, which may account for investors’ fickle mood.  On Friday, existing home sales and new home sales were down much more than expected (existing: 5.45M vs. 5.90 and new:  342K vs. 370K); initial jobless claims were down (470K vs. the expected 440K); and durable goods orders were much  worse than expected (0.3%  vs. a general consensus of 1.6%).  On the other hand, consumer confidence was up significantly at 55.9.

This morning’s news was equally mixed.  Personal income (0.4% vs. 0.3%) and ISM (58.4 vs. 55) were up a little more than expected, but consumer spending (0.2% vs. 0.3%) and construction spending (-1.2% vs. -0.1%) were down more than expected.  Trumping all that was the budget submitted by President Obama:  a mind-blowing $3.8 trillion containing a $1.6 trillion deficit.  Given that setting, you would expect the market to plunge.

You would be wrong.

Perhaps it is Monday mania or perhaps it’s the rumbling of economic recovery in the air, such as the recent news of significant increases in corporate spending (not only now but on the horizon) which presages the building of capacity needed for recovery.  More rumblings were caused by the semiconductor industry’s announcement that December chip sales were up 29% year-over-year and by the excellent earnings reports this morning from Humana (NYSE: HUM) and others.

Sorry for the muddled picture, but that’s the way it is.

Sectors.   All sectors were negative last week, of course. The best were Consumer Staples (-0.25%), Healthcare (-1.31%) and Financials (-1.32%), which was in line with our sector forecast for the week.  The worst were Materials, down -5.7%, followed by Energy and Information Technology, both down -3.06%.

Click here to see the Market Stats.

Looking ahead though, we are seeing considerable changes in our 30-day sector forecast.  You might recall that last week Financials had jumped from near the bottom to near the top. It remains there, in second place, along with Healthcare in third place, but surprisingly Energy has leaped to the top of the SectorCast rankings, and Materials has shown improvement, too, after its big price correction.   Industrials are now at the bottom, along with Consumer Discretionary and Utilities.

The outlook couldn’t be less clear, which makes me even more cautious than in recent weeks.  I recommend careful, conservative investing in value stocks, and hedging where appropriate. Never has there been a better time for a hedged or absolute-return portfolio strategy.

4 Stocks Ideas for this Market

This week, I again employed the Undervalued Large-Cap Growth preset search on MyStockFinder, but I also included Mid Caps, and up-weighted Insider Buying, Group Strength, and Long-Term Technicals. I also asked for lower beta stocks (i.e., those that tend to rise & fall less than the market).

Here are 4 stock ideas from the search that look intriguing:

Cubist Pharmaceuticals (Nasdaq: CBST) – Healthcare
DeVry (NYSE: DV) – Consumer Discretionary
Allegiant Travel (Nasdaq: ALGT) – Industrials
The Travelers Companies (NYSE: TRV) – Financials

Until next week,

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

david / Tag: ALGT, CBST, DV, HUM, Manic Monday, sectors, TRV /