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What the Market Wants: As Yogis Would Say, A Downward-facing Dog

Posted on the 06 June 2011 by Phil's Stock World @philstockworld

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Courtesy of David Brown, Chief Market Strategist, Sabrient

What the Market Wants: As Yogis Would Say, A Downward-facing Dog
The market wants to sell more than it wants to buy, apparently. For the fifth week in a row, the market continues to practice its downward-facing dog pose, with the S&P 500 closing today at 1286.17, down -1.08%. That index is now below its 30-day and 50-day moving averages.

It looks as if the market is finally taking note of the dismal economic picture. The litany of last week’s disappointing economic releases is so lengthy there no reason to recount them all. But the gloomy employment figures finally snagged the market’s full attention.

Nonfarm payrolls – including both government and private payrolls — rose just 54,000, considerably less than the expected 169,000 and dramatically lower than last month’s increase of 232,000. Private payrolls alone rose 83,000, down from an expected 180,000 and last month’s 251,000. That means the government — federal, state and local — unloaded 29,000 jobs.  (Thanks a lot, Big Guv!)

The market slid to new lows, despite the usual stimulus of a weakening dollar (down about -2%). Oil prices also fell, though not as much. Volatility spiked up, as one would expect in such a damaging week. 

Market Stats.  All cap/styles were in the red last week. Large-Cap Growth took the smallest hit, down -2.3%, and Small-cap Growth, the winner over the past 6 months, took the biggest hit, down -3.57%. Interestingly, Mid-cap Growth is now the best performing style/cap from a 12-month perspective.

The sectors clearly flew to safety last week, with the classic safe havens — Utilities, Health Care, and Consumer Non-Durables — turning in the best of the dismal performances, all down less than -1.5%. Energy joined the flight as a wild card, down -1.16%.

(Here are the market stats.)

As expected, the anti-safety sectors piled up at the bottom of the heap — Consumer Durables, -3.02%; Consumer Services and Basic Industries, both down -2.58%.  Transportation and Capital Goods lost well over -2%, while Technology (-1.76%) and Finance (-2.01) straddled the middle.

Our SectorCast outlook rankings for the next 30 days continue to favor Energy, followed by Basic Industries, Public Utilities, and Transportation. I must take issue with our own outlook rankings in that I can’t imagine how Energy could be #1 and Transportation #4. Oil prices affect these two sectors in exactly opposite ways. Logic says that rising oil prices should push Energy to the top and Transportation to the bottom. It also doesn’t make sense in a flight-to-safety atmosphere to rank Health Care in eighth position.

Our Sabrient SectorCast has been right much more often than it has been wrong; I’m just pointing out the illogic of these particular rankings.  That said, I heartily agree with the logic of Consumer Durables and Consumer Services sandwiching Finance as the three least-favored sectors.

Coming up. Perhaps the market will halt its slide this week, as there is a dearth of new economic releases in the offing.  Tuesday brings consumer credit; Thursday, initial jobless claims, trade balance data, and wholesale inventories; and on Friday, export/import prices and the Treasury budget report. It is unlikely that any of these numbers would have the power to reinvigorate the market.

Nor can we expect any fuel from the corporate side, as we’re well beyond significant Q1 earnings releases, and the next earnings season won’t kick into high gear until Alcoa’s (AA) Q2 announcement on July 11.

In this kind of market, I can only echo Daniel Sckolnik’s advice in this week’s ETF Periscope: This may be as good a time as any to hone your use of hedges. (You might want to check out the Sabrient Investor’s Hedge Portfolio, which has greatly softened the punches thrown by the market over the past several weeks.)

4 Stock Ideas for This Market

This week, I started with the Undervalued Large Cap Growth preset search in MyStockFinder (http://MyStockFinder.com). I then included Buys and Mid Caps (in addition to Strong Buys and Large Caps). Here are four stock ideas from the more defensive sectors:

NuVasive (NUVA) – Healthcare
PPL Corporation (PPL) – Utilities (Electric Power)
TIM Participacoes (TSU) – Utilities (Telecom)
Constellation Brands (STZ) – Consumer Non-durables

Until next week,

What the Market Wants: As Yogis Would Say, A Downward-facing Dog

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.

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