Market Up, Then Down, But Recovery Encouraging!

The market fell slightly, .7% for the week, a much better result than the 3.8% prior week decline. Despite the flat finish, it was another volatile week with the market up, then down, before an encouraging run to get back to even. The market was up the first two trading days largely on the strength of positive earnings reports and renewed M&A activity before turning down due to weakness in jobless claims and a survey on business outlook that failed to meet expectations. The market remains trading range bound a difficult market for long investors to make money. This is a traders market where you need to trade frequently, buying at the highs of the range and selling at the lows. But there are signs that the market could break out soon from this trading range. One, the bearish floor of the trading range appears to be rising. Many of the equity sellers have already left the market and that reduces the likelihood of the sharp selloffs we saw in 2008 and with most recent market correction. Two, corporate earnings and balance sheets are very strong, and companies have the capital to invest that will flow once the economy regains its footing. In fact, Merger and Acquisition activity began to hit up this week and that will likely continue as a way for companies to put capital to work. Three, there is a bond bubble right now, particularly with the flight to safety over the demand for treasuries. Money has flowed from stocks to bonds in big numbers that has pushed bond yields to extremely low levels, rates that are simply not sustainable. That bubble will eventually burst, and money will flow back into stocks driving up demand as investors regain their appetite for risk. The economy is improving, although at an anemic pace, but remember that is much better than the alternative, a much hyped double dip recession. How soon will the market break out of this trading range? No one knows, that could be months or to even a year or more. Our forecast is that the market will break out later this year, most likely November and December. Right now, investors can get great buys on many quality companies paying dividends of 4% or more. Those dividends also help protect on the downside. Buy stocks on the dips at the lower end of the trading range. Now is also a good time to trade options using income strategies to take advantage of the range bound trading. Watch the net money inflows into stocks for when that measure begins to increase significantly, stock prices will rise sharply and quickly.

Momentum And Value (MAV Screen): Breakout Stocks To Buy!

What Stock Tips do we have? EBIX (Software & Programming), Credit Acceptance Corp (CACC, Financial Services), Erie Insurance (ERIE, Insurance), Full House Resorts (FLL, Casinos & Gaming), and PAR Pharmaceutical (PRX, Biotechnology & Drugs) are all carryovers from our buy list for two weeks now. EBIX has already risen more than 12% since our recommendation, so investors may want to wait on a consolidation period or pullback before jumping in. We have also kept the four of the new stocks added last week on our buy list including Buckeye Holdings (BGH, Oil Well Services), MV Oil Trust (MVO, Misc Financial Services), Williams Partners (WPZ, Natural Gas Utilities), and Alliance Partners (ARLP, Coal). Lubrizol and Eli Lilly were taken off our buy list as we purchased both stocks for our portfolios last week. Both stocks represent excellent buys as well. We added one new stock to the list this week. TRW Automotive Holdings (TRW, Auto Parts) is a diversified supplier of automotive systems, modules, and components to original equipment manufacturers and related aftermarkets. The auto parts industry has really heated up and we currently are in the money on AutoZone options, another industry player. TRW stock has shown strong momentum and accumulation over the past three months and we think that can continue. Valuation is still very strong with a PE of just 7.25 relative to sales growth of 19%. Return on equity is exceptional at 47% which is near the top of the industry. Some predict that 2011 will be the biggest year ever in terms of autos sold, so get in now to make the most of the opportunity. The market is range bound, so buy stock on the dips and use options to produce income across the trading range. Also, now is a good time to take advantage of low prices on quality companies paying high dividends.