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, August 11, 2008, 3:28 PM PDT
traderstalk@sabrient.com
Well, the bulls won Olympic gold last week as broad-based gains helped push the major indices to six-week highs, led by the Nasdaq.
Style/Cap Overview
All cap/style combinations rallied more than 2%, with small-cap value continuing to shine. Over the last month, small-cap value has gained nearly 9%, which is three to four times better than the large-cap and mid-cap value segments and almost 300 basis points better than small-cap growth. Clearly, this is where the money has been going since the July bottom, and we see no reason for this trend to reverse during the next couple of weeks.
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Current Sector Performance
There seems to be little consistency among the top sectors of late, except that everything that was getting hammered up until the July bottom has spring-boarded higher, and the previously hot materials and energy sectors are now getting clobbered. Recently, health care led for a couple of weeks, then financials took the lead, and now consumer discretionary and technology are pacing the market’s advance. We’ll see what next week brings.
One thing is certain: The materials and energy sectors have brought up the rear over the last month, and continued to take it on the chin as selling pressure intensified during the past week. We are seeing further marked weakness today in materials, especially in the once-hot fertilizer stocks, which have been in the dumps since peaking in June. Final capitulation? Perhaps.
The top three sub-industries this week were among the most beaten-down of groups during the most recent downdraft. So we’re still not convinced that the recent strength is anything more than a “reversion to the mean” or a strong oversold bounce rather than a new long-term rally in apparel, casinos, and airlines.
The selloff in the precious metals groups is accelerating, but the underlying fundamentals still remain in strong long-term uptrends – which looks like a lot of short-term pain within a longer-term advance. Again, a final capitulation, perhaps?
Forward-Looking Sector Rankings
Nothing new here. Energy remains in the top spot, with materials at number 2. Selling pressure remains strong for both sectors, so we recommend waiting until buying interest returns before risking any capital in these sectors. Interestingly, technology has been among the biggest gainers off the July bottom but has fallen to last place in our one-month-forward sector rankings. I would venture that now is not the time to jump on the technology bandwagon, especially as it moves further into overbought levels. Still, you might want to cautiously play the trend with small positions.
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Stocks to Consider
Right now, “As oil goes, so goes the market.” The market has rallied sharply as oil prices have skidded more than $30 to $114 as of this afternoon (Monday). But we’ve seen these types of corrections numerous times during oil’s trek higher this decade. Each time, oil has surged higher in the following months, and we see no reason for this pattern to end, particularly as energy continues to garner the top mark for our forward-looking sector score.
Nevertheless, the overall market seems to want to move higher, so here are some new stocks to consider for this week, including a couple of technology stocks, courtesy of Sabrient’s customizable stock selection system, QMAXX:
Brightpoint (NSDQ: CELL) – Technology Sector
Cooper Tire & Rubber (NYSE: CTB) – Consumer Discretionary Sector
Iconix Brand Group (NSDQ: ICON) – Consumer Discretionary Sector
Trina Solar (NYSE: TSL) – Technology Sector
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.
