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What the Market Wants: Bulls Keeping Their Horns Sharp

Posted on the 05 April 2011 by Phil's Stock World @philstockworld

by David Brown, Chief Market Strategist, Sabrient Systems

What the Market Wants:  Bulls Keeping Their Horns Sharp
After ignoring the problems of the world at large for the past couple of weeks, the market paused for a breath today, with the S&P 500 closing up just +0.03%, at 1,332.87. Last week, the S&P 500 moved ahead 1.7% after climbing almost 3% the week before. Small-cap stocks led the charge, with Small-cap Growth the solid leader for the past 12 months.

Small caps have indeed been on a tear. The S&P 600 Small-cap Index (SML) closed at 448.08 on Friday, which was not only a pre-recession high but an all-time closing high, topping the previous high of 444.90 set on July 13, 2007.

The reasons for the market’s oblivious behavior are many: 1) QE2 continues to pour money into the system by buying Treasuries to keep interest rates low, which frees up cash at the primary dealers that is going into equities; 2) those low interest rates are driving investor money out of bonds into equities; 3) short sellers are scrambling to cover as the bulls have resumed their run; 4) the economic recovery continues to inch along, with the unemployment rate falling another 0.1% to 8.8%, and 5) corporate America is flush with cash and bulging with earnings.

As I said last week, earnings and projected earnings are strong and projected P/Es  are low. From a purely investing viewpoint, the market should continue to move up in spite of world stress. 
We’ll soon see whether earnings in fact match expectations. Quarter 1 earnings season officially started this week, but it kicks into second gear next week, with the announcement from bellwether Alcoa, Inc. (AA) on Monday, April 11.

Market stats. As mentioned above, Small-cap Growth was the leading cap/style, up+3.07%; Large-cap Growth was at the bottom, but still up +1.5%.

All sectors were lifted by the market’s rising tide. Capital Goods (+2.95%) and Basic Industries (+2.94%) were lifted the most; Technology, at the bottom, rose +0.9%.

Click here to see the market stats.

Our forward-looking SectorCast accurately predicted four out of the top 5 sectors — Basic Industries, Capital Goods, Health Care and Public Utilities; we got it wrong on Energy, which slipped to #6 and Consumer Non-durables, which SectorCast placed near the bottom but in fact was the fifth best performing sector for the week.

This will be a slow week for economic news, with the only major reports being the FOMC minutes on Tuesday and the weekly initial jobless claims on Thursday.

4 Stock Ideas for this Market

This week, I employed the Hidden Gems preset search in MyStockFinder ( to find small-cap and microcap stocks that are lightly covered by Wall Street but highly ranked in the Sabrient Ratings Algorithm. Here are four stock ideas from some of the top-ranked sectors that look particularly intriguing.

NN, Inc. (NNBR) – Basic Industries
CAI International (CAP) – Basic Industries
Harvard Bioscience (HBIO) – Healthcare
M&F Worldwide (MFW) – Consumer Non-durables

Until next week,

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

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