Weekly Stocks Market Recap

Market Beating Foresight: Strong Recovery From Prior Week

The broad market made a strong recovery from the prior week rising 3.2% as the advanced quelled some recent fears over a looming market meltdown. The stock market as a whole has stayed pretty resilient despite the strong advance since March. We still expect the market to remain very bumpy, but do not expect another big meltdown. In fact we took a couple of short positions against the market index when fears ran high to take advantage of what we thought was an overcorrection. All in all, most economic measures and corporate earnings reports have been better than expected. Recent productivity measures released last week marked the highest gains since 2003. The ISM Manufacturing index for October also cam in better than expected. Several large companies announced positive earnings surprises. The primary negative has been unemployment which has now reached the highest levels since 1983. But remember the unemployment rate is a lagging indicator and that will not improve until later as the economic advance gains more traction. In fact, we think the unemployment rate will continue to rise well in 2010 as a sign of how slow the recovery will be. However, the good news is that other economic factors have begun to show improvement which should provided continued support for the stock market.

Momentum And Value Screen: Hot Stocks To Buy

What Stock Tips do we have? We have kept Kapstone Paper & Packaging (KPPC, Paper Products), VSE Corp (VSEC, Business Services), Telenor (TELNY, Telecommunications), Conseco (CNO, Insurance), and Bucyrus International (BUCY, Const. & Agric. Machinery). We added one new stock to our watch list and that is Decker Outdoor Corp (DECK, Footwear). Decker is engaged in designing, producing, and managing footwear and other accessories including handbags, headwear, and outerwear. Decker recently released quarterly earnings that exceeded estimates and even went so far as to raise their outlook for 2010. We view that as a very positive statement in light of ongoing recessionary pressures. The fundamentals look good and its PE remains one of the lowest in the industry. Chart action has also been good as the stock has been consolidating recently at a price level high enough that leaves no overhead over the past year. Remember, we look for stocks trading near highs that we expect to go higher and Decker fits the bill. The one concern is that short interest on the stock is very high near 18% which suggest investors expect the price to fall. However, we view that as a contrarian indicator, meaning the higher it is, the more likely the price will go up. Why is that? Investors that have already sold the stock (short position) will eventually have to buy the stock back, and that demand forces prices to rise. In fact, if the price continues to rise, these short sellers will likely force the stock sharply higher as they rush in to cover their positions. Overall we still like this market and would encourage investors to continue buying on dips. The stock market will likely remain very bumpy, until investor and consumer confidence reach higher levels. Show patience on down days and take some profits when the market moves up sharply. Remember, little pigs get fat, while hogs get slaughtered!

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