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by Sabrient - December 9th, 2013 7:12 pm
Today, with very little market moving news, the S&P 500 closed at 1808.4, yet another new closing daily high. The index did touch the 1811 area on at least three distinctly different time slots creating a new resistance level. But after last week’s bevy of positive economic surprises, the sharp gain of 1.1% on Friday, leaving the index just a tiny point away from its ninth consecutive up week, we can’t be too quick to suggest today was a topping rally. For one thing, volume was quite low as traders seemed to be trying to sort out the odds on the earliest date of Fed tapering. Estimates range from this month to March and even later. But it’s going to happen…so why so much emphasis on when? Perhaps protection of end-of-the-year profits in so many fund managers portfolios? I would bet on that.
Before we leave last week, we should note that the small caps finally had a slowdown with the Russell 2000 down nearly 1%. Mid-cap Value led the style/caps, up 30 basis points. Sectors had an unusual week led by Technology, up 0.72%, followed by Utilities, up 0.29%. You read that right; Technology #1 and Utilities #2. I don’t recall that happening before. Consumer non-Cyclicals was the only other sector in the black, up 0.15%. That sector is frequently pared with Utilities, so its performance is not such a big surprise. Energy, Consumer Cyclicals and Telecom were at the bottom. It all makes sense for a cautious market except for Technology’s leadership. Investors seem to be torn between caution and end-of-the-year window dressing.
This week offers very little in the way of important economic indicators other than Thursday’s Retail Sales, the weekly peek at Initial Jobless Claims to see how real last week’s 298K figure was, and Business Inventories. Most corporate quarterlies are already out there. So, we are left to consider the reality in last week’s rumors that a budget deal might be forthcoming. What a present that would be from our much maligned Congress!
Caution remains a major thought for this market. Technology, Financials and Basic Materials are the top of our sector shopping list, but the real key is finding undervalued companies projected to grow regardless of their sector.
3 Stock Ideas for this Market
by Sabrient - December 9th, 2013 11:42 am
“Experience is not what happens to a man. It is what a man does with what happens to him.” -- Aldous Huxley
Wall Street made a nice little recovery on Friday, as positive jobs numbers helped bring the major indices a lot closer to break-even for a week that seemed destined to end up substantially in the red.
Still, in spite of the biggest single-day gains in seven weeks, both the Dow Jones Industrial Index (DJIA) and the S&P 500 Index (SPX) suffered their first losing week in nearly two months.
For the week, the Dow shed 0.4% and the SPX dropped 0.1%. The Nasdaq Composite (COMP) managed to squeak into the black, however, gaining a miniscule 0.1%. More significantly, it ran its winning streak to four weeks in a row and hit highs that haven’t been touched by the tech-laden index since the heady, bubbly days of 2000.
The economic report that sent the market closer towards its recent strong upward trajectory was from the Department of Labor, which announced that November’s unemployment rate was the lowest since the start of 2009.
Of major interest from an investor’s perspective was the fact that the good news on the jobs front was not countered by fears that the Fed would now become emboldened to initiate its tapering of the current bond purchasing program.
The $85 billion per-month program has been credited by a number of economists as a key factor in driving the equity market up to its current record-breaking highs.
This “good-news-is-bad-news” cycle has been in place, to a certain degree, for most of the last several months as investors perceive, correctly or not, that good economic news will provide the Fed with appropriate cover to pull back, or entirely curtail, the current stimulus program.
Maybe it’s the holiday spirit, but in any event, investors seemed to decide en mass to discount the potential impact of the report on the Fed’s decision regarding the tapering timing.
This sentiment may change as next week’s Fed policy meeting draws closer, and therefore becomes more prominent on investor’s radars.
In the meantime, the phenomena of yet another Santa Claus rally seems to once more be rearing its rosy head.
by Sabrient - December 5th, 2013 12:24 am
Courtesy of Sabrient Systems and Gradient Analytics
As the charts last week indicated might happen, the S&P 500 has fallen four straight days and failed to hold its breakout above 1800 while the Dow Jones Industrials lost 16,000. Only the NASDAQ is still holding on to its breakout above 4000. Although the Basic Materials sector was the leader on Wednesday, the Technology sector was strong, as well, and in fact Tech stocks have been the strongest over the past week and the past month.
As markets finally show a willingness to pullback somewhat from their torrid pace, the bears are trotting out every naysayer they can lay their hands on to scare investors away, including smart folks like Carl Icahn, who is “very cautious,” and Nobel Prize winner Robert Shiller and his stock market “bubble” assertions. Sure, valuations are high on a historical basis, but on the other hand, modern technology, a service-oriented economy, and economic globalization have led to sustainably higher return ratios and growth opportunities. The real question is not how we compare with valuations from the ‘50s and ‘60s, but whether earnings growth will materialize as expected given the lessening-but-still-onerous global economic uncertainties, as well as our lovably inept Congress as they enter the second attempt at addressing the budget and debt ceiling.
One unexpected boon to the economy has been the pullback in oil prices, due to a combination of increased domestic (U.S. and Canada) production and Iranian oil returning to the market. Another surprising factor is the persistently high short interest, which can be a supportive of the uptrend when those positions are unwound.
My best suggestion is to use this minor pullback/consolidation as a buying opportunity…but stay away from the more speculative high-P/E stocks.
By the way, Sabrient’s “Baker’s Dozen” annual portfolio of high-potential GARP stocks has surpassed the +43% return of last year’s portfolio and is now up +45.4% since inception on January 11, doubling the S&P 500 return of +21.8% over the same timeframe. Moreover, all 13 stocks are comfortably positive and 12 are up by double digit percentages, led by gains of +107% in Jazz Pharmaceuticals (JAZZ), 88% in Genworth Financial (GNW), 59% in Alaska Air Group (ALK), 55% in NXP Semiconductor (NXPI), and 50% in Seagate Technology (STX). In fact, the worst performer is Ashland (ASH), which is up “only” +9.5% since January…
by Sabrient - December 2nd, 2013 6:14 pm
Repeating Friday’s market performance, today, the S&P 500 sold off in the last 30 to 40 minutes, giving up its entire daily gain for a loss of 0.27%. Nevertheless, it did gain 0.1% last week for its eighth consecutive weekly gain.
The Small-cap Growth style/cap was the leader last week, gaining 1.58% and raising its leading one-year gains to 43.67%. The growth style continued to dominate value in all three major market cap ranges. Value delivered a negative performance for the week in both large- and mid-caps. (See market stats.)
Interestingly, all economic releases last week, and again today, beat estimates with only one exception, Consumer Confidence, which had been expected to be flat at 72.4, actually dropped to 70.4. Those indicators beating estimates included Building Permits, Jobless Claims, Durable Goods, Chicago PMI, Michigan Sentiment and Leading Economic Indicators. A few were actually down a bit but still beat estimates. Today, both the Manufacturing ISM index and Construction Spending for October were up and above estimates.
Two disquieting notes are the sharp drops in major indices during the last 30 minutes of trading and the sharp rise in the VIX fear index, up 5.9% on Friday and another 3.87% today, closing at $14.23. Volume was quite weak last week as expected, but it was also below normal levels today. Clearly, there was disappointment in brick and mortar holiday and Black Friday sales, down approximately 3% from last year. However, online sales were up a similar amount percentage wise. Accordingly, brick-and-mortar chains were down sharply today, while eBay Inc. (EBAY) and other online retailers were up. Amazon.com Inc. (AMZN) was off 0.41%.
What should we take from all of this?
Well, the rise in the VIX, while much closer to historic lows than highs, dictates caution. As do the late sell-offs. We feel valuations, while higher than the past few years, are still historically reasonable, and true bargains can be found as our weekly searches have demonstrated throughout the year. Good news from congressional dysfunction or the ObamaCare fiasco would certainly help.
3 Stock Ideas for this Market
I selected the following stocks from a custom search looking for undervalued growth stocks with recent upward analyst revisions in MyStockFinder (*all data below from Yahoo! Finance):
Marvell Technology Group Ltd. (MRVL) –Technology
by Sabrient - December 2nd, 2013 12:25 pm
“It is a mistake to look too far ahead. Only one link in the chain of destiny can be handled at a time.” -- Winston Churchill
With the US equity markets hitting new highs on what seems a daily basis as of late, investors may be forgiven if they haven’t been tracking the European economy as closely as they had in the recent past, when the Eurozone seemed to be in perpetual crisis mode.
And, with the region recently emerging, though ever so barely, from its most recent multi-year recession, the morbid fascination with the Eurozone shifted to something closer to mild disinterest.
The fact is that the European bourses have mainly mirrored Wall Street’s success this year, though to a somewhat lesser degree.
For example, while the S&P 500 index has gained over 27% year-to-date as of last Friday, VGK (Vanguard FTSE Europe ETF), which is the largest of the European equity ETFs in terms of capitalization, was up 16.99%.
VGK tracks the FTSE Developed Europe Index, which consists of over 500 common stocks of 17 European countries, and serves as a reasonable proxy for the region’s equity markets.
The thing is, the uptrend in the area’s economy is at least partially based on the perception that the Eurozone has become a more stable market, which can be greatly attributed to the European Central Bank’s (ECB) bold proclamations that it is ready to take whatever action is required to keep the monetary union intact.
One of the tools used by the ECB back in late 2011 was the LTROs, long-term refinancing loans that served to introduce increased liquidity into a banking system that was seriously flailing at the time.
The first wave of LTROs was wildly successful in its mission, and a second wave followed not long after.
The cheap loans to the banks totaled $1.36 trillion dollars and were widely credited as a key to stemming the flow of blood being spilled by the PIIGS (Portugal, Ireland, Italy, Greece and Spain) at that time.
Fast-forward to the present, and a large portion of the cheap money has been repaid to the ECB by the banks. As a result, excess liquidity has reverted to 2011 levels.
by Sabrient - November 28th, 2013 1:53 am
Courtesy of Sabrient Systems and Gradient Analytics
As stock traders take a break for Thanksgiving, all the major averages have hit new highs after breaking through psychological resistance levels, including the S&P 500 at 1800, Dow Jones Industrials at 16,000, and NASDAQ at 4000. Tech stocks were the big leaders on Wednesday after a strong earnings report from Hewlett-Packard (HPQ). The iShares US Technology ETF (IYW) finished up over +1% while the broad S&P 500 was only up +0.25%. Also, petroleum refiners had a strong day led by Marathon Petroleum (MPC), which is in Sabrient’s Baker’s Dozen annual portfolio, after the firm agreed to partner with Enbridge on the new Sandpiper pipeline, which carries crude oil out of North Dakota’s Bakken field.
Although Wall Street has been optimistic, as evidenced by the continual new highs and low volatility, consumer sentiment and general economic optimism is still low — these are definitely not the roaring 90’s from the standpoint of Main Street. For example, the AAII suggests that only 34% of surveyed investors are bullish, which is down from 49% just a month ago. But this is usually bullish from a contrarian perspective.
There is still abundant liquidity to continue fueling the engine of the bull train, and now we can add the historically bullish seasonality, bolstered by the wealth effect of rising stocks and real estate. Europe and China are holding up nicely, and even Iran is offering up at least a temporary respite for investors. Total short interest on S&P 500 stocks is near its highest levels of the year, which is bullish in that it can ignite frantic short-covering. The only possible stumbling block I see in the near term from a macro standpoint is the postponed US budget battle and debt ceiling.
Importantly, there appears to be no Fed tapering anywhere on the horizon, although I think they are keeping the threat alive in their discussions just to quell “irrational exuberance” in the equity markets. In fact, we might not see any tapering before 2015, and the Fed Funds rate could remain near zero for even longer.
Although corporate earnings are showing gradual improvement, doves on the FOMC remain unconvinced. As a result, the promise of persistently low interest rates gives validity to rising P/E multiples in stocks. Nevertheless, you constantly hear commentary about the imminent rise in longer-term interest…
by Sabrient - November 25th, 2013 7:27 pm
Today, Thanksgiving week was greeted with a marginally up day by the markets with the NASDAQ reaching a new high of 4007 before falling back below 4000 to close up nearly 3 points at 3995.57. The S&P 500 reached a new all-time high at 1808.58 before ending the day down a little over 2 points at 1802.48. The generally positive attitude was brought about, at least partially, by the agreement from Iran to curb its nuclear program. Indeed, it is a small step with many pitfalls ahead during the next six months: Iran could abandon its efforts to construct nuclear weapons with full inspection rights or, at the worst, show no efforts to curb that progression. But combined with the Syrian acceptance to give up its chemical weapons, the agreement with Iran represents at least a mini-step for mankind to cease its violent methods of resolving disputes.
The rest of the week will probably be a rather lethargic market. There are a number of economic numbers released but very few new corporate earnings reports. Tomorrow’s Housing Start numbers have been postponed until December 18, due the government shutdown. They will release September, October and November numbers on that date. Oddly, New Building Permits, which are expected to improve, will be released. Case Schiller will also release its monthly home prices reports, so perhaps we will get a sense of what is happening in housing. Also, tomorrow, we will get what is expected to be an improved Consumer Confidence reading for November. On Wednesday, we will get Initial Jobless Claims and the Final Michigan Sentiment numbers for November. Both are expected to be improved. On the other hand, we also get November’s Chicago PMI and October’s Leading Economic Indicators, and both are expected to be worse than previous figures. It is unlikely anything but an enormous surprise, such as the Republicans and Democrats reaching agreement on any bill, is likely to move markets this week.
Finally, sectors, much as we expected, were led last week by Healthcare, Financials and Consumer Cyclicals in the top five. Energy was also there, but unlikely it’s to repeat due to some Iran oil starting to move. So, best stock shopping will probably be available in those three sectors over the next few weeks. Have a wonderful holiday and give thanks for…
by Sabrient - November 25th, 2013 10:46 am
“Education is the ability to listen to almost anything without losing your temper or your self confidence.” -- Robert Frost
Right now, it looks like it would take a major downside event to prevent the major indices from having a swimmingly good year.
And, with December historically being one of Wall Street’s best months, the U.S. and Iran suddenly playing nice, and the next Washington budget battle still a shout away, odds are that the current uptrend will continue, at least into the New Year.
It doesn’t seem like a stretch to make such a prognostication, really, given that the benchmark S&P 500 Index (SPX) hit an all-time high of 1,800 last week as it notched its seventh straight week of gains.
Ditto for the Dow, as the Dow Jones Industrial Index (DJIA) soared above 16,000 towards the end of the week, once more hitting its own record highs. Like the SPX, the Dow has been in the black for the last seven weeks, a fairly robust uptrend to be sure.
Attributing the market’s direction solely to the Fed’s continued largesse, in the form of its $85 billion per month bond purchase program, would be an over simplification, of course, though it does seem that the market’s uptrend gets substantially slowed every time the various and sundry Fed officers mouth the word “taper.”
No, it would seem that the lack of any really bad economic news, coupled with the fact that investment capital currently accepts the risk inherent in equities, combines for a powerful one-two punch that apparently trumps the nation’s actual economy, which remains in the realm of extremely low growth.
Volatility is low, and complacency is high.
So is there some play that may be made in terms of volatility? Probably, though the play may consist primarily as a hedge.
Using the Chicago Board Options Exchange Market Volatility Index (VIX) as a proxy for volatility, the “fear gauge” as it is known, reveals some interesting patterns for this calendar year.
Closing at 12.26 as of Friday, the VIX is in familiar territory for 2013. It has now hovered at or near 12 during four distinct time periods this year, a level similar to that seen prior to the 2008 crash. Each time, it then soared by 25% or greater within the following couple of weeks.
by Sabrient - November 21st, 2013 9:45 am
Courtesy of Sabrient Systems and Gradient Analytics
“Stocks fall on Fed taper discussion.” That’s the gist of what you heard in the media on Wednesday to account for the market’s late-day pullback. There’s always some sort of attempt to explain daily market action. But the reality is that investors simply must take a periodic breather to regroup and retrench, particularly when making an assault on round-number resistance for a major index. And in this instance, there are multiple indexes encountering such resistance simultaneously, including the S&P 500 at 1800, Dow Jones Industrials at 16,000, and NASDAQ at 4000.
There was an article Wednesday on CNBC.com about short-selling hedge funds seeing the current equity “bubble” as a once-in-a-lifetime short-sale opportunity. They see inflated valuations and P/E multiples as completely out of line and driven solely by the Fed’s quant easing programs, whose days they see as numbered.
No doubt, the trend away from lower-quality companies, i.e., “junk stocks” like Tesla Motors (TSLA), which tend to lead during the speculative phase of bull markets, is starting to give way to more appropriate leadership from higher-quality companies. So, I agree that shorting opportunities should abound going forward. In fact, there already has been a noticeable divergence in the underperformance of small caps, many of which are indeed highly speculative. As the bull run matures and junk stocks become extended, institutional investors (“smart money”) tend to focus more on earnings and fundamentals such that capital shifts away from the lower-quality, high-P/E stocks and into higher-quality companies with strong, steady earnings growth and reasonable multiples.
Nevertheless, I still expect the eagerly anticipated year-end rally to materialize. First of all, the trend is your friend. Second, don’t fight the Fed. (Do those adages sound familiar?) Fed tapering, despite what the media is reading into the Fed minutes, is still a long ways off, particularly given the slowness of the economic recovery and the historically low M1 Multiplier (MULT). Also, the Eurozone is looking more solid every day, and stocks in the PIIGS nations have been performing extremely well. Ireland and Spain have announced that each will soon exit the economic assistance programs. In fact, Ireland’s success with the dreaded austerity path has been quite impressive to witness.
by Sabrient - November 18th, 2013 8:13 pm
The S&P 500 seemed to hit a wall at 1800, retreating after the all-time, but rebounded to close only 0.38% down. It could be just a pause or it could be a bit more serious due the plethora of earnings reports this week from the Consumer Discretionary sector. Today, URBN began what will be a veritable deluge of retail sector earnings reports this week. URBN beat on both top and bottom with double digit revenue growth from several of its key chains, Free People (30%) and Anthropologie (13%), beating earnings estimates by $0.02 and issuing strong guidance. The bad news is the not only did the stock fall 1.3% today, but it is also down another 2.6% in the after-market. Tomorrow, we get CPB, BBY, HD, TJX and DKS before the market opens. During the remainder of week, we get LOWE, JCP, WMT, FL, GPS, GME, ROST, P, SPLS, TGT and WSM. That should paint the retail picture for us by week’s end. Other important earnings will come from DE, MDT, ADSK, ARUN. Today we got decent results from TSN, but it was still down in the after-market. CRM delivered a rather shaky report, deserving its 3% fall during market hours and additional 1% fall after hours.
New highs were reached last week just about everywhere, led by Mid Cap Growth, up a solid 2.44%.Even the trailing style/cap Small-cap Value was up a full percent. The market showed strong bullish tendencies with growth leading value in each cap/style. The sector leaders were growth stalwarts Energy, Consumer Cyclicals, Healthcare, Technology and Industrials, all up more than 1.5%. But even Basic Materials, which was the worst, gained 0.3%.
It could have been a topping week with fairly strong volume and the myriad of new highs. A number of the economic indicators last week were a bit disappointing, led by Industrial Production off -0.1% vs. an expected 0.3%. Initial Jobless Claims were a bit worse than expected, and the Trade Balance was also worse than expected. Retail Sales on Wednesday may help point the near term direction along with Leading Indicators on Thursday. But the bevy of retailer earnings reports along with management’s guidance should tell us how the economy is doing--and more importantly, what the investor reaction to it will presage near term market behavior!