Editor's Note:
David Brown, chief market strategist for Sabrient Systems, will be writing the weekly Trader’s Talk. David is a former NASA scientist, retired CEO of Telescan, Inc., and author of four books on investing. (More about David)
Sabrient is a leading provider of independent, unbiased, quantitative equity research to institutions, portfolio managers, investment advisors, and hedge funds, as well as to self-directed investors. The firm is poised to take a quantum leap forward . . . A cutting edge, proprietary platform, FSYS greatly advances Sabrient’s ability to create, build, test and execute powerful strategies. You will see some of the power of FSYS in David’s weekly Trader’s Talk column. (Visit Sabrient at www.sabrient.com)
By David Brown
Monday, July 14, 2008, 4:40 PM PDT
traderstalk@sabrient.com
Despite the somewhat surprising collapse of IndyMac on Friday, the market found pockets of strength during the first week after the Fourth of July holiday.
Small caps, in particular, resumed their dominate role, as you can see in the styles-and-caps table. Small-cap growth, which made a profit of 1.5% last week, has been the place to be over the past six months. In fact, small caps were positive across the board, while large caps were negative; this is in contrast to the prior week. Growth easily outdistanced value in all market caps, which can probably be attributed to the poor showing of financial stocks throughout the week.
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Sectors
There were other pockets of optimism during the week. Health care, materials and consumer staples were all solidly in the black, with health care showing a 1.3% gain. Of course, these are the stocks people buy when recession is in the air. Even telecom and utilities showed small profits.
To the surprise of no one, financials and consumer discretionary had nasty losses in the 2-3% range, but there was one shocker: The energy sector checked in with a nearly 3% loss. This was due to falling oil prices, if you can imagine such a thing as falling oil prices. I doubt this weakness signals the end of the bull market in energy stocks. More likely, it is a one-week aberration.
In the sub-industries, specialty chemicals had a super week, fueled by the Rohm & Haas acquisition. Aluminum and steel were the main growth items of the materials sector, while financial stocks and trading companies were among the worst, along with the oil & gas refiners.
Forward-Looking Sector Rankings
Looking forward, energy and materials remain right there at the top of the heap, but look who else is in the top three: Financials, for the first time in recent memory! In light of the sharp decline fueled by the IndyMac collapse, we continue to feel that financials may be seeking a bottom, and diligent shopping could very well pay off. Certainly, we need a week to digest all this news related to the bank failure and to the Fanny Mae and Freddie Mac bailouts.
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Stocks to Consider
Here are some stocks to consider from small-cap growth and the financial sector:
Natus Medical (NSDQ: BABY) - HealthcareCal-Maine Foods (NSDQ: CALM) – Consumer Staples
OptionsXpress Holdings (NSDQ: OXPS) – Financials
Cash America (NYSE: CSH) – Financials
David Brown
Chief Market Strategist
About This Newsletter
Our goal in this newsletter is to use Sabrient’s quantitative methodology to provide the best hunting ground for styles, caps, and sectors for both longs and shorts – and to provide guidance in areas where you may want to be cautious versus aggressive in your portfolio. In the very near future, we will be using our FSYS platform to produce a look-ahead for the next 1 to 3 months of the most likely performance expected from these styles, caps and sectors.
Also, this newsletter is for you. So we welcome your suggestions as to information you would like to see included in this newsletter. You can send your suggestions to traderstalk@sabrient.com.
