Labor Day Outlook

Market Beating Foresight: Is Sentiment Changing

The stock market lost ground last week as the S&P dropped -1.2%. The week started with declines, but did recover some of those losses by the end of the week. Economic data was mixed as the Manufacturing Indexes showed improvement along with pending home sales. Payroll data was released on Friday and those numbers too were better than expected. But the market seemed spooked by an unemployment rate that rose more than expected. We sense that market sentiment is becoming more pessimistic with traders selling good news while bad news carrys more weight than it did just a few short weeks ago. September is traditionally the worst performing month and that too may be adding to the caution. The economy is still in declining although the pace of the declines has decreased. The worst may be over, but it will take time before consumer confidence returns and that is an essential ingredient for economic growth. We expect the unemployment rate to continue rising into next year, and those job losses will dampen any recovery. All signs still suggest that the recovery will be slow and could take several years as consumers regain confidence, rebuild wealth and reduce debt loads. Over the short term we expect the market to remain very bumpy, in range bound trading. We can make money in such a market by taking gains more quickly and turning over stocks more frequently. If volatility stays low, we know our trading strategy will exploit current market conditions, allowing expansion of our performance lead over competitors, as well as the broad market index.

Momentum And Value Screen: Hot Stocks To Buy

What Stock Tips do we have? Our Momentum and Value stock screen has uncovered several Hot Stocks. The Breakout Stocks on our list include Credit Accep Corp (CACC, Consumer Financial Services), Allion Healthcare (ALLI, Healthcare), World Accep Corp (WRLD, Consumer Financial Services), Kapstone Paper & Packaging (KPPC, Paper Products), Del Monte Foods (DLM, Food Processing), and Walter Energy (WLT, Coal). CACC, ALLI, and WRLD are carryovers from our buy list last week. We are adding three new stocks to our buy list for this week. Kapstone Paper has had strong price action over the past six months, but remains very reasonably priced. Institutional ownership is on the light side which could provide additional pop to the stock price if they join the party. This one does have a very high amount of short interest 32%, meaning investors expect the price to drop which adds risk to a buy. However, we sometimes view high levels of short interest as a contrarian play in that if the stock price rises, short sellers will have to buy to cover, propelling the stock even higher. We also added Del Monte Foods to our buy list. We have traded DLM before for profit, so we already know this company. The stock price has been on a steady trend upward now since December of last year. Prospects for the company look decent as commodity prices have been improving which lowers costs and increases margins. Walter Energy was our last addition for the week. WLT produces coal primarily for the steel industry. Stock prices have been rising recently from very depressed levels due to economic conditions. The economy will temper industrial demand and company growth, but this company has been very profitable despite the difficult economic times. At some point the economy will begin to slowly turn and that will give an added boost to Walter Energy. We purchased Five Star Quality and Satyam for our portfolio last week and as is our practice, we removed them from our current buy list. We also dropped Bucyrus and American Equity Life from our buy list as both came significant selling pressure. Overall we think the market is reasonably price and expect a narrow trading range over the near term. The market is still weak and trying to find its legs, so the ride could still be quite bumpy for the remainder of the year. This is a good time to take some gains if you have them and reinvest into new stocks.

Remember, you can access daily updates on Hot Stocks to Buy directly from our web site At: http://www.marketbeatingstocks.com