What the Market Wants: Technology Stocks Under Siege

Here we are again wondering what the market wants.  Today, it clearly wasn’t Technology stocks, as various issues dragged both Apple (AAPL) and Google (GOOG) lower. Apple has been hurt by the likelihood of rising supplier costs from its Chinese supply chain related to the poor working conditions issue.  In addition, the Federal Government, along with 15 states, announced an anti-trust suit against Apple and a number of book publishers for price collusion. If successful, the suit would lower e-book prices, favoring Amazon and hurting Apple due to its alleged collusion with the book publishers.

Google, meanwhile, faces a significant lawsuit of its own from Oracle over its alleged use of Java technology in Androids. Separately, the FCC fined Google over its alleged violation of privacy rights from its Street View service.  And if all of that was not enough, institutional shareholders are raising concern over Google’s 2-for-1 stock split last week, since the new shares will not carry voting rights.

Since both Apple and Google have recently hit new highs, it is not that surprising that these issues, which in total are unlikely to have very serious effects on either company, could indeed generate a wave of profit taking.

It was a bit of an odd day with the DJIA up 70+ points and the NASDAQ losing over 23 points while the S&P 500 “sat” there finishing nearly “dead even” (-0.7%).  But it does conclude another week of losses for the S&P, now nearly 3% off its high two weeks ago of 1422.

Globally, we’re still faced with a lot of “small” problems.  Although none by itself is a cause for alarm, how many times can you say “small problem” before the aggregate “small problems” become a large problem?  Spain continues to flounder with bond yields rising back to dangerous levels. Stability in Egypt is wavering. Ditto for Afghanistan and Pakistan.  After last week’s embarrassing rocket launch failure, Korea may decide that it needs to prove its competence by testing another atomic device. There’s a lot to worry about but still a paucity of alternatives to the equity markets for decent returns.

Valuations still seem reasonable against historical norms.  Basic Materials and Financials are both oversold due to legitimate concerns that may have driven their respective sector prices too low.  Consider the strength in today’s Financial sector led by Citigroup (C), up nearly 2%, despite missing all their numbers, and last week’s strong reports by JP Morgan (JPM) and Wells Fargo WFC).

Today’s retail sales report for the retail group was pleasing, rising 8% versus an estimated 0.3% and last month’s 1%. With corporate cash still at record levels, it is likely that we will see continued acquisition’s such as Merck’s (MRK) move today to buy Endocyte’s (ECYT) rights to Vintafolide, a new cancer drug in trials. The price tag was about $1 billion! Our forward-looking sector model’s top three are Financials, Healthcare and Basic Materials.

The remainder of this week will include a plethora of big-name industries across the board.  Tomorrow morning, includes Ameritrade (AMTD), Goldman Sachs (GS) and State Street (STT) from the Financial Sector, and Johnson & Johnsons (JNJ) from Healthcare. While under siege, the Technology sector will feature releases from Intel (INTC), IBM, Seagate (STX) (a Sabrient Baker's Dozen 2012 pick), and Yahoo (YHOO).

Economic releases this week feature most of the housing industry data, industrial production tomorrow, initial jobless claims and the Leading Economic Indicators on Thursday.

While we await the reports of this week and the weeks to come, we continue to seek undervalued large- and mid-cap stocks and recommend hedging with European ETFS such as VGK, IEV, and/or EWP.

Here are the market stats.

4 Stock Ideas for this Market

This week, I used the GARP preset search in MyStockFinder with an added focus on recent upward analyst revisions:

HollyFrontier Corporation (HFC)—Energy
Chemtura Corporation (CHMT)—Basic Materials
Discover Financial Services (DFS)—Financial
Delta Airlines (DAL)—Industrials

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:  The author does not hold positions in any of the stocks mentioned in this article.

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.

Editor's Note.

David Brown, chief market strategist for Sabrient Systems, is a former NASA scientist, retired CEO of Telescan, Inc., and author of four books on investing.  (More about David)

Sabrient is a leading provider of independent, unbiased, quantitative equity research to institutions, portfolio managers, investment advisors, and hedge funds, as well as to self-directed investors. The firm is poised to take a quantum leap forward with FSYS, a cutting-edge, proprietary platform.  FSYS greatly advances Sabrient’s ability to create, build, test and execute powerful strategies.

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What the Market Wants
david / Tag: AAPL, CHMT, DAL, DFS, EWP, financials, GOOG, HFC, IEV, JPM, S&P 500, STX, technology, VGK, WFC /