What the Market Wants: Market Faces a Trying Week

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Courtesy of David Brown, Sabrient Systems and Gradient Analytics

JP Morgan (JPM) managed to not only finesse their loss in Q2 from the London Whale trade to slightly less than $5 billion but also save the S&P 500 from its seventh consecutive day of losses. But the smell from the Barclay-led LIBOR fiasco is spreading across the ocean and renewing concern about regulatory actions against major U.S. banks and hence the growth of the economy as well.

This is the biggest week for major companies’ quarterly earnings reports. Over 200 reports will be filed, including major Dow and S&P 500 companies. Technology companies will be closely watched due to several advance warnings from major technology players reporting this week: Intel Corporation (INTC) on Tuesday, and both Microsoft Corporation (MSFT) and Google Inc. (GOOG) on Thursday. Guidance will be almost as important as the Q2 results; it’s a good week to be prepared for both boom and bust.

Market Stats. Style/caps were led last week by Large-cap Value, +0.43%. Small-cap Growth was the worst, at -1.15%. However, recall that Small-cap Value has been best over the last month and last three months. Clearly, it is a value market until the “economic clouds” break. From a sector viewpoint, last week was classic flight-to-safety with Utilities and Telecom up 1%, followed closely by Healthcare. Financials did well due JPM’s and Wells Fargo Co.’s (WFC) announcements Friday, but I would steer clear of the big bank financials until we understand more about the breadth of the LIBOR scandal.

Here are the market stats.

Incidentally, key economic reports and another visit with Chairman Bernanke are also on deck this week. It was a bad start today with Retail Sales off -0.5% versus an expected gain of +0.2%. Empire Manufacturing was better than expected, and Business Inventories were a tad higher than expected. CPI will be reported tomorrow, along with the important Industrial Production number. Housing Starts and Permits will be closely watched on Thursday to see if the improvement in the housing sector is real. Of course, we get the weekly Initial Jobless Claims on Thursday as well, and the week ends with LEI on Friday. Not a week for the timid!

We urge hedging with European ETFs such VGK, IEV and EWP. Our colleague Daniel Skolnick in this week ETF Periscopes recommends hedging with EZU (see ETF Periscope).

4 Stock Ideas for this Market

This week, I used the GARP preset search in MyStockFinder, including only Large- and Mid-cap stocks. Here are four you may find interesting:

HollyFrontier Corporation (HFC)—Energy

Symantec Corporation (SYMC) — Technology

Melcrown Entertainment Limited (MPEL)—Cyclical Consumer

Deckers Outdoor Corp (DECK)—Cyclical Consumer

Until next week,

David Brown

Chief Market Strategist

Sabrient Systems

Leaders in Investment Research

http://www.sabrientsystems.com