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 21, 2008, 3:12 PM PDT
traderstalk@sabrient.com
Financials spiked higher last week after the market bottomed out in capitulatory fashion on Tuesday. Better than expected earnings news from a slate of big banks and other financials sparked a fierce two-day rally on Wall Street following weeks of weakness. Wells Fargo got the party going on Wednesday after announcing a great quarter and a dividend increase, which gave investors a lot of confidence that the worst is finally over for financials. Our indicators have been steadily pointing to good improvement from financials.
Small-cap value, among the most beaten-down cap/style segments of the last 12 months, recorded a healthy gain of 3.6% gain amid the enormous week for banks and financials. Mid-cap value and large-cap value also came back to life.
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Sectors
The sectors flip-flopped last week. Financials and consumer discretionary ranked among the top of the chart, reversing a recent trend. Energy and materials fell to the bottom of the one-week and one-month charts, and both sectors are down more than 10% in one month. Oil continues its slide, so it looks like for now the long-winded rally in oil stocks may be taking a breather. Of note, the telecom sector has worked its way up the chart and now ranks second behind only health care over the past month.
Airlines top the list of sub-industries, rallying 24% from extreme oversold as the price of oil fell. Homebuilders and hotels are also some of the most beaten-down stocks of late, and rallied in tandem with the markets. Home furnishings and leisure products, from the third-ranked consumer discretionary sector, rounded out the top five. Not surprisingly, steel, oil and gas, and coal were the worst performers of the week.
Forward-Looking Sector Rankings
Energy and Materials remain the top sectors looking forward, despite their recent profit-taking tumble. Mark my words, energy will be back once it finds its bounce point. Materials might have found one already, led by market darling Monsanto (NYSE: MON) as well as Dupont (NYSE: DD) and Freeport-McMoran (NYSE: FCX). The popular Ag Chemicals & Fertilizers industry group was particularly strong on Monday. On a relative basis, Financials dropped a bit to sixth following their surprise showing at number three last week.
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Stocks to Consider
Here are some value stocks to consider from the financial sector:
World Acceptance (NSDQ: WRLD)
Loews (NSDQ: L)
Arch Capital Group (NSDQ: ACGL)
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.
