Stocks Sputter as Investors Seek Next Catalyst

Stocks are sputtering, in search of a catalyst to determine whether the next move is higher, or lower.

Analysts and traders have been expecting a pull back for several weeks now. Stocks have gained more than 20 percent since October and have run straight up since late December.  But most expect a relatively shallow pull back of  3 to 5 percent.

On Wednesday, the Dow turned south, and was off 27 at 12,938, after flirting with the psychological 13,000 level a day earlier. The S&P 500 also moved lower, down 4 at 1,357, now 7 points below its 2011 close and 13 points below the key 1,370 intraday high of 2011.

“I continue to like the market. I believe that we are on good footing, and I think that even though a near term dip may occur that investors should accumulate on that dip,” said Paul LaRosa, chief market technician at Maxim Group.

“The key number is 1,370, on the S&P, and if we don’t penetrate that in the next week or two that could indicate a negative divergence,” said LaRosa.

Thursday’s big number is weekly jobless claims, expected to come in at 355,000 when it is released at 8:30 a.m. EST. FHFA home price data is released at 10 a.m. and there are a few morning earnings, including Kohl’s, Target, Liberty Media, Dish Network, Echostar, Foster Wheeler, Hormel, Safeway, American Tower and CMS Energy. AIG, Gap and Salesforce.com report after the closing bell.

Apple’s [AAPL  Loading...      ()   ] shareholder meeting is at 1 p.m. and traders will be watching to see if there’s any talk about a much speculated on dividend, which would be a first from the cash-rich company.

Traders are also watching 13,000 on the Dow, which it touched briefly on Tuesday. They see it as a big round number that could act as a magnet for investors who have been underweight stocks.

LaRosa said stocks will be attractive unless U.S. economic data begins to sour. “Right now, I’m seeing green lights,” he said. He said technically the market is strong. “With so many charts, it’s that concrete base, that foundation. I think this house has a foundation even if a little storm comes by,” he said. A good sign for the market was when the Dow pushed through last year’s high earlier this month, he said.

“We may just keep marching higher. I think it’s not the news, it’s the reaction to the news. I think people are getting too concerned with headline risk… I think at this point the headline risk is overdone,” said LaRosa.

Steve Massocca, managing director at Wedbush, said he sees the market as a “sell” at current levels, but he would be a buyer if it fell several percent. “I think we see a lot of risks of a very elevated market. On the other side of the argument, I get the feeling the world is very underinvested in stocks and fixed income securities are basically yielding nothing. There’s an impetus for people to buy stocks. I don’t think we’ll get a significant decline, but we’ll probably back off these prices and I we think we’ll see a correction,” said Massocca.

He said the S&P could dip back down to 1,300.

One risk that traders have been watching is the rising tensions between Iran and the western nations that have imposed sanctions on it in an effort to stop its nuclear program. Oil has risen sharply as a result, and was up just slightly Wednesday at $106.28 per barrel. London Brent crude [LCOCV1  Loading...      ()   ] , a measure of international prices, was up 1 percent at $122.90.

Massocca said another risk is that the Greek debt deal could unravel. “It’s fraught with risk of falling apart, and that would put a real damper on the rally. There’s also some concerns about how durable the economic recovery is. How much of it is weather related. How much of it is inventory building,” he said.

BNP Paribas currency strategist Mary Nicola said the next key date for Europe is Feb. 29, when the European Central Bank carries out its next long term refinancing operation, or LTRO. She said the market also awaits news on Greece’s deal with private creditors. “Those are the two pieces of news that could drive euro dollar. For now, the market has settled down and is rangebound,” she said.

She said the market is also watching the weekly jobless claims number to make sure it remains below 400,000, indicating an improving labor market. “If we do get below 400,000 again, it would be the fifth straight week that we get it. I think it will be pretty important,” she said.

What Else to Watch

EIA oil inventory data is released at 11 a.m., while natural gas storage data is reported at 10:30 a.m.  The Treasury holds a $29 billion 7-year note auction at 1 p.m.

Dallas Fed President Richard Fisher will appear on  CNBC’s “Squawk Box” at 8 a.m.

Follow Patti Domm on Twitter: @pattidomm

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Focus on Stocks That Aren't That 'Sexy,' Analyst Says

The next year is likely to bring a period of tepid growth for businesses, and investors should stick to defensive plays even though they are not that sexy, Barry Dixon, head of research at Irish wealth management company Davy told CNBC.

Dixon urged investors to focus on companies with “strong fundamentals in terms of balance sheets, cash flows and that are essentially cheap (to run).”

He rejected suggestions that the stock prices of such firms tend to be high, urging investors to look at companies with strong fundamental positions in existing and emerging markets.

An example he gave a firm “not in the sexy end of the (stock sector) world”—Irish insulation producer Kingspan [KGP-GB  Loading...      ()   ] , which has gained strong market positions in the UK, US and Australia.

“Kingspan is a fantastic way of playing the green agenda; they’ve started from a small Irish company 30 years ago to being what is effectively a global player now on the insulation market,” he explained.

“There’s no global leader in insulation at the moment and it’s a hugely important area driven by regulation,” he added.

Dixon pointed to India as a growth market where insulation products are used to protect perishable items from heat. Rising energy costs in European markets have boosted insulation product sales as well.

Betting on Sport

Bookmakers could be a good bet for investors in 2012 due to a number of sporting events taking place over the summer, Dixon said.

UK- based bookmaker William Hill [WMH-GB  Loading...      ()   ] is particularly attractive due to significant investment in their online industry and relatively low overheads, Dixon explained.

“Everybody thinks that the retail bookies in the UK are dead, and they’re saying that 60 percent of their customer base is over the age of 40 so they’re literally dying off,” Dixon said.

However, he added that up to 50 percent of William Hill’s revenue comes from gambling machines, and betting on soccer was particularly popular among the 18-35 age group. With the World Cup and the European Soccer Championship tournaments taking place over the summer, bookmakers are likely to cash in.

“If you look at the demographics of the people who are playing the machines and are betting on (soccer), it’s the 18 to 35 year olds.. so the bookies are bringing back in that young demographic,” Dixon explained.

He added that William Hill shops made around £80,000 ($126,727) per year and less than £10,000 ($15,838) per year was spent on maintenance and investors could expect a cash flow yield of 10 percent.

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Disclosures:
Davy Wealth Management is long Kingspan; Davy Wealth Management is long William Hill

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