Market Near Trading Range Highs

Another strong week as the broad market rose 1.5% driving the YTD return into positive territory. The market is at the upper end of its trading range from the past few months and continues to show resilience in the face of significant headwinds. Corporate earnings reports were mostly good as Best Buy, Oracle, and Research In Motion all reported better than expected earnings. However, FedE, another bellwether, missed estimates and issued downward guidance. Tech stocks rallied, a good sign, as many stocks in this sector have been beaten down. We continue to believe in the global recovery, while assigning only a small probability to double dip concerns. Corporate America remains flush with cash which provides continued support for the growing M&A activity underway. We are bullish for stocks, although caution that near term risk is higher given current trading range highs and the fact that the calendar at this time of year has not been kind in past markets. Now is not the time to divest from stocks, but taking some profits would be in good order. We are cautiously optimistic near term, but more importantly, expect the market to finish the year strong. Buy quality stocks any time there is a pullback. As for options, income strategies and trades that take advantage of the current trading range remain good bets. The timing for buying call options is becoming more interesting as volatility and premiums continue to drop. However, buying protection may be more prudent given lower premiums and third quarter uncertainty. Our Equity portfolios are beating the market YTD and we expect both portfolios to finish the year strong. Our options portfolio has struggled this year, but we think the worst is over as out of the money call options expire this month and next. The value of those call options all tanked quickly during the surprise summer correction.

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

What Stock Tips do we have? For this week, we made changes to the stocks carried on our buy list. We have eight stocks on our watch list of which six are returning stars from last week including Clearwater Paper (CLW, Paper Products), Solarfun Power (SOLF, Semiconductors), TRW Automotive (TRW, Auto Parts), EBIX (Software & Programming), Credit Acceptance Corp (CACC, Financial Services), and Erie Insurance (ERIE, Insurance). We dropped MV Oil Trust (MVO, Misc Financial Services), and PAR Pharmaceutical (PRX, Biotechnology & Drugs) from our list as short term momentum has begun to slow. These stocks may recover, but sitting on the sidelines may be prudent until demand interest drives their stock prices higher. We also purchased Alliance Partners (ARLP, Coal) last week, and removed from our watch list. We added two new stocks highlighted below. Freeport McMoran (FCX, Mining) specializes in mining Gold, Silver, and Copper across the globe. Commodity metals prices are tren ding higher and we think that will continue as the economic recovery drives global demand. FCX is a popular play among traders so there is plenty of liquidity. However, what we like is both the valuation and price momentum on the stock. The PE is only 10 for a company that has grown sales 30% over the past 12 months, the mark of a cheap stock. Furthermore, FCX earnings growth has been even greater than sales over the past year. FCX is a great way to play the uptrend in commodity prices, as well as global economic recovery. We also replaced PAR Pharmaceutical with a new pick, Medicis Pharmaceutical (MRX, Biotechnology & Drugs). Medicis is a specialty pharmaceutical company focused on helping patients attain a healthy and youthful appearance through the treatment of dermatological and aesthetic conditions. The long term prospects for this business are excellent given aging baby boomers and the vanity search to appear younger. Medicis is one of the best run companies in this space with a Return on Equity above 18%, one of the highest rates across the industry. Their PE is attractive at 14 in light of 36% sales growth. That is excellent sales growth, but earnings have been even better as the company operates at margins that exceed nearly all industry competitors. The prospects for long term price appreciation on Medicis stock are excellent.

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