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What The Market Wants: Searching for Support

Posted on the 21 June 2011 by Phil's Stock World @philstockworld

Courtesy of David Brown, Chief Market Strategist, Sabrient

Searching for Support

By David Brown, Chief Market Strategist, Sabrient Systems

What The Market Wants: Searching for Support
The S&P 500 Index closed at 1274 today, up +0.54%.  This was the third consecutive up-day, but since its peak of 1363 on April 29, it has had seven consecutive down weeks, falling about 8% from the April high.  For the past eight days, the index has been searching for support, chattering around the 1275 level. While that may offer support now, 1275 could prove to be tough resistance if the index closes below that level. (It dipped to an intraday low of 1258 last Thursday.)

Today, the market was up broadly.  Health Care and Consumer Staples did well (classic flight-to-safety). Transportation was up, reflecting the continued fall in oil prices.  Finance was the laggard today.  Tellingly, the VIX was down significantly today, settling in around 20 as the market hunts for support.

The primary force buffeting the market has been the “will-they-or-won’t-they” question about a Greece default.  It looks as if the European Union will come to the rescue, but that doesn’t relieve all the pressure on the market, which is also being pelted by disappointing economic indicators at home.

In the past week we learned that business growth stalled; retail sales dipped; the housing market languishes; and initial jobless claims remain above 400,000.

There’s little economic news in this week’s pipeline to move the market one way or the other. Existing home sales tomorrow; new home sales and initial jobless claims on Thursday; and the final first quarter GDP number on Friday, along with the durable goods report. The ones to watch are durable goods and home sales.  Decent numbers on durable goods has the best chance of showing continued recovery, and the housing market could be boosted by some decent numbers in home sales.  Or not.

Market stats. There’s not a lot to be gained by looking at last week’s cap/styles, except that the market is showing a clear preference for value. The leading cap/style was Small-cap Value, up +0.9%.  The “small-cap” part of that equation is surprising, as large caps are the usual safe haven.  But Large-cap Value was the only large cap group that was up (+0.33%).  The worst cap/style was Mid-cap Growth, down -0.51%.

Last week’s sector rankings relate chiefly to the behavior of oil prices, the dollar, and VIX.   Not surprisingly, Transportation led the sector performance, up +1.3%, due to falling oil prices.  Consumer Staples took second place, in an apparent classic flight to safety.  Health Care, one of the usual safe havens, was the big surprise, down -0.13%, which put it fourth from last.  Basic Industries, Energy, and Technology turned the worst performance, clearly reflecting the dropping oil prices and worries about economic growth, which is exacerbated by the situation in Greece.

The VIX rose sharply last week to a peak of 24.5 on Thursday, reflecting those worries, although it closed four points lower today.

Looking ahead. Our forward-looking sector rankings continue to favor Energy, Basic Industries and Technology, despite their performance last week.  Their mediocre scores show there’s not much conviction behind those rankings.  Strong conviction appears to be behind the very weak scores that place Finance, Consumer Services, and Consumer Durables at the bottom of the forward looking rankings.

4 Stock Ideas for This Market

This week, I started with the Momentum Small Caps preset search in MyStockFinder ( I then included Buys (in addition to Strong Buys) as well as Mid Caps. Without limiting the search to specific sectors, here are four stock ideas that have been ignoring recent market weakness:

ZAGG Inc. (ZAGG) – Consumer Non-durables
Holly Corp. (HOC) – Energy
Infinity Pharmaceuticals (INFI) – Healthcare
Triumph Group (TGI) – Capital Goods

Until next week,

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

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