14
Nov
2011

What the Market Wants: A Slightly Better Outlook

A Slightly Better Outlook

By David Brown, Chief Market Strategist, Sabrient Systems

Despite today’s sell-off, the forward outlook is slightly better than it was last week.  Friday’s positive day on weak volume bailed out last week’s poor showing.  Things couldn’t have looked much worse after the heavy sell-off on Wednesday, the worst market performance in three months.  Gloom from Europe, gloom from the stalemate in our Congress, and gloom from the prospect of falling back into the S&P 500’s abysmal trading range of 1120 to 1220 weighed on investors.

But Italy’s positive bond auction, following its Prime Minister’s resignation, started to improve the tone.  This was aided by a better-than-expected initial jobless claims figure here in the States and by improved trade deficits and treasury budget readings Thursday.  A surprise boost in Michigan Consumer Sentiment Index got the market really moving towards its strong close Friday, albeit on light volume.

Here are the market stats.

Market Stats. The week’s positive conclusion was led by flight-to-safety style Large-Cap Value, up 1.03%, while lagging behind was its antithesis, Small-Cap Growth, down 0.74%.  Classic flight-to-safety sectors Consumer Non-Cyclical (+1.5), Healthcare (+1.3%) and Telecommunications (1.2%) led the way.  Financials continued to take the brunt of market angst, down -0.87% last week and today, losing yet another -1.84%.

It’s true today’s giveback probably corrects some of Friday low volume run-up, but the market closed on a strong note today as the GOP emphasized that Congress will meet its debt deadline with a deal.  The new Prime Ministers in Greece and Italy have improved the euro outlook but by no means resolved the crisis.

The dollar strength today didn’t help the domestic market, nor did a poor showing in European bourses.  But there is little doubt that we have moved back from the brink.  Regardless of the difficult problems ahead, we are still better off than we were last Wednesday, with improved leadership both here and abroad, abundant corporate cash, and well-priced companies.

Looking Forward. Caution is still urged, and bargain hunting is the desired style especially after last week’s flight-to-safety. The VXX (iPath S&P 500 VIX Short-Term Futures ETN) remains an effective hedge, as it performed strongly last Wednesday (+18.8 gain) and again today, gaining nearly 2.5%.

4 Stock Ideas for this Market

This week, I used the GARP (growth at a reasonable price) preset search in MyStockFinder (http://MyStockFinder.com). I also included Buys. Here are four stock ideas that look intriguing:

CACI International Inc. (CACI) – Technology
Group 1 Automotive, Inc. (GPI) – Cyclical Consumer Goods & Services
Community Health Systems, Inc. (CYH) – Healthcare
Caterpillar Inc. (CAT)—Industrials

Until next week,

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

What the Market Wants
david / Tag: CACI, CAT, CYH, GPI, VXX /