The S&P dropped 3.7% for the week and once again is in negative territory for the year. The S&P is now down -3.5% for the year and is down 12% from April 23 highs. Trading sentiment was not positive and news last week was mostly negative. The biggest downer was Housing as both existing and new home sales were sharply down in May. Some fear that we are entering a double dip decline in housing, a situation that is exacerbated by a lack of buyers given an unemployment rate around 10%. Furthermore, mortgage rates are already at extremely low levels, an incentive that has not been able to jump start the housing market. We are not optimistic regarding the housing outlook over the near term, and expect that recovery to take years. The market feels a bit iffy right now, so patience is the call of the day. We think this is still a good time to invest long term in stocks, but would encourage investors to invest new money gradually, while holding current positions. One positive was financial reform as the conference committee reached agreement. As a result, there was a relief rally amongst financial firms on Friday. The clarity the bill brings will provide more stability to the financial markets, despite the fact that many of the details still need to be worked out. We expect financial firms to gain ground over coming months assuming passage of the bill next week, and particularly like the prospects for Bank of America.
Momentum And Value (MAV Screen): Breakout Stocks To Buy!
What Stock Tips do we have? For this week, we added a few stocks to our Breakout list. We now have seven stocks on our watch list that include the three repeaters Amerigroup (AGP, Healthcare Facilities), LaCrosse Footwear (BOOT, Footwear), and Clearwater Paper (CLW, Paper Products). We added four new stocks including HealthStream (HSTM, Computer Services), Seracare Life Sciences (SRLS, Biotechnology & Drugs), Kulicke & Soffa Inds (KLIC, Semiconductors), and AutoZone (AZO, Retail (Specialty). We bought a long call spread against AutoZone last week, but also like the stock. The auto parts retailer has held up well despite broad market declines and we think the business of replacement parts will continue to grow as frugal customers continue to delay new car purchases. HealthStream is a play on the training and education needs of the healthcare industry which continues to grow along with the demographic driven demand for healthcare. Seracare has the potential to be a big winner although there is higher risk. The company serves the global life sciences industry by providing vital products and services to facilitate discovery, development, and production of human and animal therapeutics. The momentum and fundamentals look good, well worth the potential risk. Our last addition is Kulicke which designs, manufactures, and sells capital equipment and tools used to assemble semiconductor devices. The company also services and maintains its equipment for its customers, semiconductor device manufacturers. The stock can be volatile, but the potential is there for big gains. EPS and Sales growth are gaining speed as semiconductor demands grow among business users and consumers. At a price of only $7.50, percentage price gains could be significant. The broad market volatility did rise last week as investors are growing more nervous with selling pressure. Second quarter earnings will be released over the next three to four weeks, and that will likely be a catalyst for the next market move. We still think now is a good time to buy stocks, but think patience is in order and would suggest being more selective on those stocks that are purchased. Our plan is to rotate out of weaker performances and to replace those with stocks from our breakout list.
