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Once again, early strength for stocks yesterday quickly turned to weakness. There is a battle going on between the bears and the bulls. Despite all time lows for consumer sentiment, there is a growing number of analysts and market strategists who believe a rally is at hand.
We’ve been seeing signs of a rally for a couple weeks now. That’s why I recommended taking a few positions in select stocks.
Even though we have yet to see a sustained move higher for the major indices, you could be flat to slightly up on SXC Health Solutions (Nasdaq:SCXI) recommended in my SmallCapInvestor PRO advisory service on February 18 and here in the Daily Profit on February 26. Graham Corp (AMEX:GHM), CardioNet (Nasdaq:BEAT) and Emergent Biosciences (NYSE:EBS) also appeared in the March 2 edition of Daily Profit.
Of these stocks, SXC Health Solutions is probably my favorite. Its recent earnings report looks very good.
I’m most nervous about Graham. Given the recent strength in oil prices, this small oil services company should have advanced more than it has. But it’s up 7% as I write, so I’m willing to give it the benefit of the doubt, for now.
*****The most obvious catalyst for the strength in the stock market today comes from Citigroup (NYSE:C). CEO Vikram Pandit is saying the bank is having its best quarter since 2007.
Of course, when you get $40 or so billion in cash, you ought to be able to find a way to make some money. But I suppose now is not the time to question the quality of Citi’s newfound optimism. The market likes it, stocks are higher, let’s enjoy it.
*****Earnings is one of the big wild cards right now. According to current estimates, the S&P 500 has a P/E of approximately 11. That number includes an expected $0.70 per share loss from Citigroup. And I’m sure that Citigroup isn’t the only company whose losses are weighing on valuations.
But suppose Citigroup is able to turn its losses around quicker than expected? That would instantly lower the P/E for the S&P 500 and make stocks more attractive.
Now, I want to emphasize that I’m not saying this will happen. Only that this is part of the bullish sentiment that is driving prices higher.
*****The next Recovery Portfolio video conference is coming up tonight, March 10, 2009 at 6 pm Eastern time. We’re entering a trade that offers is highly likely to net 24%, and gives you 17% downside protection. You can register HERE.