(By Rich Bieglmeier) Thanks to a confounding ISM Manufacturing report, stocks shot out of the box to start the week. The survey defied previous manufacturing scorecards and topped the street's expectations. The unexpected good news helped the indexes levitate, and then Ben Bernanke spoke.
The Chairman says he doesn't believe a recession is on the horizon; however, he added that growth is too slow to bring down unemployment. In our view, he could be setting up more pumping. In deciding to initiate QE3, the central bank used maximum employment as the target of the new program. They made it clear that if employment doesn't recover quickly enough, then more easy money is coming.
Unfortunately, Wall Street reacted negatively to Bernanke's comments. The NASDAQ finished in the red while the S&P gave back most of the day's gains, and the Dow cut its move in half by the close.
iStock doesn't like it when the NASDAQ is the weakest of the indexes. It is like Marry and the little lambs. Where the NASDAQ goes, the others are sure to go, usually anyway.
The next big, market moving news announcement comes on Friday with the Employment Situation report. We will have more on it Friday morning. In the meantime, investors still need to watch to see if the indexes bust through 2012 highs before they close below last Wednesday's lows. Higher highs or lower lows, that is the technical question that will determine the coming trend.
In the event stocks do manage to move higher, then large-cap stocks are likely to pull the cart according to our analysis of sector charts. Oil & Gas, gambling, and healthcare are a few of the potential winners in this week's emerging and mature bull industries.
Later today, as we do every Tuesday, iStock will post the complete list of sectors we believe will outperform and underperform the S&P 500. We will also highlight a stock from one of the hot columns that meet some of our favorite technical and fundamental criteria.
On the downside, semiconductor stocks look horrible. The software sector isn't too far behind, and real estate continues to look weak despite achieving a "bottom." If you have profitable stocks from any of the bear lists, you might consider taking some defensive action; for example, writing covered calls.
That's it for today.