10
May
2010

WHAT THE MARKET WANTS: Wild Ride is Over . . . For Now

It was a wild ride last week and perhaps the worst week the markets have seen since we began publishing this newsletter in 2004.  But today the bulls stampeded and the shorts ran for cover as the S&P 500 gained +4.4% for the day!

For this exuberant about-face, we can thank the trillion dollar euro rescue that addresses the debt problems of Greece and other weak European countries.  Plus, there was good news from our own monthly employment report which was unexpectedly strong with 290,000 new jobs in April versus the expected 200,000. That followed on the heels of the revised March increase of 230,000 new jobs, which included temporary census workers.

Some of today’s exuberance can be attributed to the realization that the reaction to the data glitch on Thursday was over the top.  Since volatility has calmed considerably, I think we can assume that things are back to “normal,” so to speak.  But of course one day can never define a market.

Sectors, caps & styles. Not surprisingly, last week saw a classic flight to safety with large-caps trumping the small caps and, in general, value acing growth.  The sectors reflected the same flight to safety with Consumer Staples, Healthcare and Utilities – the things we can’t do without -- leading the pack and Energy, Materials, Industrials and Financials bringing up the rear.

Click here to see the Market Stats.

But based on our forward-looking SectorCast model, we continue to think that Energy, Financials, and Information Technology (IT) look the most stable. Although Materials has a higher overall score than IT, IT has demonstrated a better balance of relative performance during both strong and weak market periods.

Looking ahead. This week’s economic reports present a number of prisms through which we can view our recovery.  Wednesday will give us a look at our trade balance, our deficit as reflected in the Treasury budget, and our petroleum inventories.  Thursday will show us our natural gas inventories and the weekly initial jobless claim, and Friday brings reports on retail sales, industrial production and consumer sentiment.

We continue to remain cautious in our outlook, but things are looking up at least in the short term.

4 Stock Ideas for this Week

This week, I started with Sabrient’s Undervalued Large Cap Growth preset search on MyStockFinder (http://MyStockFinder.com). Then I added Mid Caps and slightly upweighted Technicals, Analyst Upgrades, and Insider Buying. Here are 4 new stock ideas from the top-ranked sectors that I find particularly intriguing.

  • Capital One Financial (NYSE: COF) – Financial
  • Cimarex Energy (NYSE: XEC) – Energy
  • Newmont Mining (NYSE: NEM) – Materials
  • RF Micro Devices (Nasdaq: RFMD) – InfoTech

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.

What the Market Wants
david / Tag: COF, NEM, RFMD, sectors, XEC /