Business Magazine

What the Market Wants: Where’s the Next Support?

Posted on the 04 October 2011 by Phil's Stock World @philstockworld

Where’s the Next Support?

By David Brown, Chief Market Strategist, Sabrient Systems

What the Market Wants: Where’s the Next Support?
Today the S&P 500 Index dropped 32 points and plunged through its major support level as if it wasn’t even there.   Support at 1120 has held firm on many occasions in the past two months—the latest being last Friday—but today the Index landed at 1099, which is more than 20 points below its previous support.  It’s no comfort that the next solid support is at least 40 points lower.

The drop is clearly related to the lack of progress with the Greece bailout.  Despite all the promises we’ve heard, investors still fear the country will be allowed to fail (but I doubt that).   Adding to investor worries are the problems with China’s economy.  Some positive readings from our own economic reports, which we’ve all been waiting for, failed to soften the landing.

Positive reports included today’s ISM Manufacturing Index (up +1% from last month) and construction spending (1.6% higher than expected and 2.8% higher than the previous month).   These on the heels of last week’s happy news from  the Chicago PMI, indicating sharp improvement in business conditions in the Chicago area, and the easing of consumer pessimism, as measured by the Reuter’s/University of Michigan Consumer Sentiment Index.  Moreover, initial jobless claims dropped sharply last week to 391,000, falling below 400K for the first time in several weeks.  Even the third revision of GDP was up, rather than down, albeit only 0.1% more than expected.

Under other conditions, these numbers might have buoyed the market, but not today.  So much for timing.

Market Stats. Last week, the S&P 500 Index ended the week just about where it began, but the flight-to-safety gave Large-cap Value almost a +1% gain.  Anything to do with growth or small caps was negative, although the numbers weren’t nearly as bad as the week before.

Financials led the sector performance last week, rising from the ashes for a +1.5% gain.  (The sector gave it all back today, along with another 3%, falling -4.5%.)  The traditional flight-to-safety sectors, Health Care and Public Utilities, were both up around +1%, while Basic Industries, Consumer Services, and Technology were all down -2% or more.

Until the European situation is settled, we will continue to cast a skeptical eye on our forward-looking SectorCast.  Basic Industries is the highest ranked, due to a much lower than normal P/E ratio, but no one is betting on Basic Industries until we see some sign of global growth.

One encouraging note comes from the stats on our top-ranked 100 stocks.  On May 2, 2011, the group had a projected P/E ratio of 8.2.  Last week it declined almost 30%, to 6.06, while the market fell somewhat less than 20%.  What this means is, for those top 100 stocks, earnings forecasts for the year have increased significantly, bringing the projected P/E close to its February 2009 low of 5.25. What this means for you, the investors, is that valuations are attractive.

Another factor we consider for our top-ranked stocks is “net revisers” (the difference between the number of analysts revising upward for the current year versus the number revising downward for current year).  Last week this number improved from 3.5 to 4.9.   Another factor is a valuation score, which compares the current quarter’s projected earnings (assuming they are met) with the same quarter a year ago and its stock price.  This score, 9.95, is the highest it has been since we started keeping these stats in March 2009, when it was 2.34.

These stats tell us that when the uncertainty is removed (assuming it ever is) the market could be in for a fairly sharp gain.  Unfortunately, we won’t know when that will happen. Even if Greece is actually resolved, our own government is on a fairly short deadline to settle the spending cut/tax loophole issues.  Based on recent behavior, we have no reason to believe that Congress will get that done before the November deadline.

Nevertheless, there are some attractively priced stocks out there, so we would suggest investing in flight-to-safety sectors in stocks with very attractive valuations, such as the four below.  Also, we continue to recommend hedging—by shorting FXE (Rydex Currency Shares Euro Currency Trust), which tracks the euro’s value against the dollar, and/or going long on the VXX (the iPath S&P 500 Short-Term Futures ETN or “fear index”).

4 Stock Ideas for this Market

This week, I started with the Undervalued Large Cap Growth preset search in MyStockFinder (http://MyStockFinder.com). I also included Buys (in addition to Strong Buys) and slightly up-weighted  Group Strength. Here are four stock ideas that look intriguing in this shaky market:

Agilent Technologies Inc. (A) – Technology
MedcoHealth Solutions Inc. (MHS) – Health Care
Coach Inc. (COH) – Consumer Non-durables
EQT Corporation (EQT) – Utilities

Until next week,

David Brown
Chief Market Strategist
Sabrient Systems, LLC.
Leaders in Investment Research
http://www.sabrient.com
Follow us on Twitter: http://Twitter.com/ScottMartindale

Full disclosure: The author holds no positions in the stocks selected for 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.


You Might Also Like :

Back to Featured Articles on Logo Paperblog

These articles might interest you :

  • Big Food Giants Manipulate Public Health Policy in China

    Food Giants Manipulate Public Health Policy China

    Coca-Cola is at it again. As soda sales decline in the United States and Europe, beverage companies look to emerging economies like China for growth. And, it... Read more

    The 15 January 2019 by   Dietdoctor
    DIET & WEIGHT, HEALTH, HEALTHY LIVING, MEDICINE
  • Jewellery for a Precious You

    Jewellery Precious

    Jewellery is always close to a woman’s heart. It completes her look and boost confidence. Considering the changing trends in jewellery fashion, it becomes... Read more

    The 15 January 2019 by   Dr.jenifer Sayyed
    LIFESTYLE
  • Rajshri Productions’ Next Is A Film On Friendship | Hum Chaar | Trailer

    Abhishek Dixit’s debut feature film Hum Chaar is a Bollywood film made under the banner of Rajshri’s film. Hum Chaar is written and directed by Abhishek Dixit. Read more

    The 15 January 2019 by   Themoviean
    ENTERTAINMENT, MOVIES
  • Saint Paul the First Hermit

    Saint Paul First Hermit

    Today is the feast day of Saint Paul the hermit. This is a sweet and delicate Oatmeal Bread topped with rolled oats and naturally sweetened with agave. Saint... Read more

    The 15 January 2019 by   Veronica46
    FOOD & DRINK, RECIPES
  • Irupathiyonnaam Noottaandu | Teaser | Pranav Mohanlal | Arun Gopy

    Arun Gopy’s Irupathiyonnaam Noottaandu is an upcoming Malayalam action-drama feature film starring Pranav Mohanlal and Zaya David in the lead roles. Read more

    The 15 January 2019 by   Themoviean
    ENTERTAINMENT, MOVIES
  • A Year Of Body Positivity

    Year Body Positivity

    Last January, as I sat there on New Years eve all set to make the same old resolutions I've made year after year for as long as I can remember, I realised how... Read more

    The 15 January 2019 by   Sparklesandstretchmarks
    DIARIES, SELF EXPRESSION
  • Garden Bloggers Bloom Day – Jan 2019

    Garden Bloggers Bloom 2019

    Euphorbia rigidaWhen I went out to take the photos for this blog post I was surprised at how much was in flower dotted around the garden. Read more

    The 15 January 2019 by   Patientgardener
    GARDENING, HOME

Magazines