Stock Market Outlook and Attractive Sectors

By: Chris Ciovacco | Fri, Mar 4, 2011
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As we prepare for Friday's employment report, it is a good time to review both the market's outlook for the next few months and our possible investment approach. For those keeping score at home, the consensus forecast for Friday's employment number is 180,000; the range of forecasts spans from 120,000 to 255,000. Thursday saw the biggest gain in stocks thus far in 2011. According to Bloomberg:

The Institute for Supply Management's index of non- manufacturing businesses increased to 59.7 from 59.4 in January. The median forecast of economists projected the index would fall to 59.3. Same-store sales rose 4.3 percent last month, beating an overall compilation of analysts' estimates for a gain of 3.8 percent at the 27 chains tracked by Retail Metrics. Separate government data showed productivity climbed more than estimated and labor costs dropped more than forecast.

Market breadth was decidedly positive Thursday, especially the up/down volume stats for the NASDAQ. Trading volume was slightly higher than the previous session on both the NASDAQ and S&P 500, but a little disappointing relative to the magnitude of the gains.

This week we have updated our asset allocation models, which allowS us to compare 220 asset classes/sectors/investments head-to-head. We have a short list of possible buy candidates should it be needed on Friday. The recent strength in economic data still has energy (XLE) and numerous energy-related subsectors looking attractive, including oil & gas equipment and services (XES), oil & gas exploration and production (XOP), and oil equipment providers (IEZ).

An economy that may not have been hurt as bad as anticipated by rising oil prices also puts the broad market (VTI) and economically-sensitive semiconductor manufacturers (SMH) on our short-list of possible buy candidates. Agriculture (DBA) has been consolidating for a month and may be poised to regain traction should the market applaud the much-anticipated employment report due Friday morning at 8:30 a.m. ET.

Semiconductors Relative Strength

We would prefer to see the market's reaction to tomorrow's employment number before making any moves. While Thursday's market was impressive, numerous short-term indicators, including MACD, have not crossed bullish thresholds, meaning we will remain patient with cash until we see what we want to see. For those who want more technical analysis, this post shows additional things we are looking for in terms of feeling better about the recent rally attempt.

Like to See

In terms of the market's outlook for the coming months, the CCM 80-20 Correction Index tells us the market's current profile has produced favorable results more often than not over a three-to-twelve month time horizon. As we mentioned on March 3, we are still concerned about corrective activity, but we are not concerned about a full-blown bear market at the present time.

Risk Reward Profile Stock Market

Similarly, the CCM Bull Market Sustainability Index (BMSI) also points to a favorable risk-reward profile for investors looking out three-to-twelve months.

Stock Market Outlook

As shown below, the S&P 500 still sits above potential support from 2008. The recent intraday low was 1,294, which was made last Thursday. As long as we hold above 1,294ish to 1,291ish, it makes sense to hold our current positions.

Stock Market Support

 


 

Chris Ciovacco

Author: Chris Ciovacco

Chris Ciovacco
Ciovacco Capital Management

Chris Ciovacco

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE.

Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/