Churn Baby, Churn!

We have gotten to the “churning” phase for the stock market. That is where bullish and bearish sentiment are fairly well balanced. And the market often ends the day close to breakeven

Now that doesn’t mean that it’s all calm and harmonious. Far from it.

Rather, the churning phase sees great intraday volatility as bulls and bears wrestle for the upper hand. Also there is heavy sector rotation with big winners and losers. (Often they trade places the very next day).

What is an investor to do about this?

If you are confident in your bullish or bearish view, then make sure your portfolio reflects that sentiment. If you are unsure of the final outcome, then have a more defensive portfolio with some shorts in the mix to protect against downside. Then wait for a clear catalyst to show you where the next leg of the market will be.

Best,

Steve Reitmeister (aka Reity… pronounced “Righty”)
Executive VP, Zacks Investment Research

4 Ways to Find Deep Value Stocks Now

The breakout above the old highs at 1370 did not hold on Friday as stocks closed slightly below. But to say the S&P 500 only slinked back -0.3% on the day is not really telling the full story.

You see, Friday was a big “Risk Off” day. (aka Flight to Safety day). That can clearly be seen by the large cap indices barely in the red and bond rates plunging while riskier stocks in the Russell 2000 took at -1.6% thrashing.

Is this something to worry about?

(Insert yawn here)

No. This is just the classic rotation that investors do during a consolidation period. They keep moving their money from group to group searching for outperformance. Some days it’s just industry/sector rotation. But Friday it was safety on and risk off.

The market is still looking for a catalyst to end this rotation nonsense and finally breakout to new highs. This week’s monthly employment reports just might provide the needed impetus. ADP gives us the first set of clues on Wednesday followed by the Government’s on Friday. Given the positive jobs trends of late, I would say the odds are better than 50/50 that stocks will breakout higher next week thanks to these jobs reports.

Best,

Steve Reitmeister (aka Reity)
Executive VP, Zacks Investment Research