The Quant View: Heading Towards Major Support

As I write this today (Monday, June 22), the market is quite weak on a very broad basis, with only the Utilities sector in positive territory. Last week, virtually every style/cap component of the market was down about 3%. Mid-cap did the worst (down 3.6%) and large-cap growth did the best, but everything was down more than 2%. As the market continues its meandering path toward major support, is a tradable bounce in our near future?

Once again, both the general news and economic news were relatively positive, but the market continues its technically related sell-off. Today, the S&P500 remained below 900 for most of the day and closed at the low. It seems to have its sights set on important support around 880.

Last week, Health Care was the only positive sector of the week, up about 1.5%, while Consumer Staples and Utilities had minimal losses. Industrials, Energy and Materials had major losses, exceeding 5%. Recall that Utilities has been at the top of our forward-looking sector rankings for the past few weeks, while Materials has been at the bottom.

Looking ahead regarding sectors, Energy, Utilities, Telecom and Health Care are all positive while Materials, Financials and Information Technology remain at the bottom.

From an industry viewpoint, just about anything that had health care in its name did well last week, while Energy Equipment & Services, Marine and Paper & Forest Products were all down in the range of 10%.

We are essentially in a profit-taking market environment, with relatively low volume, which is at least one positive sign that this is primarily a technical pull-back. It is unlikely that the upward trend will resume without more reassurance that the economy indeed is continuing to recover and that a return to positive growth is in sight. This evidence will need to come from some combination of forward-looking corporate guidance, continued positive economic reports, and improved consumer confidence.

In the meantime, we will see how the likely test of the S&P's 880 support level holds up this week. Important economic reports begin in earnest on Tuesday, and will have an impact. End of quarter dynamics should play a role, too. Overall, I anticipate a tradable bounce from the S&P500 880 level.

This week's stocks to consider are below the tables.

Style & Cap Overview

Current Sector Performance

Best and Worst Industries

Forward-Looking Sector Rankings

Stocks to Consider

I ran a MyStockFinder search (http://MyStockFinder.com - a.k.a., QMaxx) using the GARP preset search and up-weighting long-term technical strength. Here are some stock ideas from the top of the list that look intriguing:

• Atwood Oceanics (NYSE: ATW) - Energy (Energy Equipment & Services)
• Kinetic Concepts (NYSE: KCI) - Healthcare (Healthcare Equipment & Supplies)
• DISH Network (Nasdaq: DISH) - Consumer Discretionary (Media)
• NRG Energy (NYSE: NRG) - Utilities (Independent Power Producers)

This is a commentary from the 6/23/09 Trader's Talk newsletter.  Click here to receive the newsletter via email. It's absolutely free!

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