Market Report – February 27, 2012

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In The Rear View:

Stocks were able to creep higher during the holiday-shortened week and over the five trading days ending Friday February 24th, all three major U.S. indexes are slightly higher. The S&P 500 is currently found trading at levels not seen since just before the darkest days of the financial crisis while the Nasdaq rests in a neighborhood not seen since the days the tech bubble burst.

The Dow Jones Industrial Average continues its much-ballyhooed flirtation with 13,000, though this is arguably a more psychological event than anything else, but once the Dow does breakthrough and hold 13,000, it will certainly be viewed as a bullish sign bu everyone from Wall Street to Main Street.

Commodities enjoyed a solid week as West Texas Intermediate oil is now found flirting with the $110 a barrel mark. Brent, the international benchmark contract, is over $120 and trading in an area where some investors might start to get pensive regarding high oil prices because those high oil prices could be seen as crimping global economic growth.

Other commodities are shining as well. In the past five trading days, the iShares Gold Trust (NYSE: IAU) and the iShares Silver Trust (NYSE: SLV) are up more than 2% and 5%, respectively.

The Markets @ 2/24/2012
Index Close Weekly % Change YTD Change YTD%
DJIA 12982.95 33.08 0.26% 765.39 6.26%
NASDAQ 2963.75 11.97 0.41% 358.6 13.77%
S&P 500 1365.74 4.51 0.33% 108.14 8.60%
NYSE Comp 8151.97 37.46 0.46% 674.94 9.03%
NYSE Amex 2469.62 28.36 1.16% 191.28 8.40%
RUS 2000 826.92 -1.76 -0.21% 86 11.61%
VANG INTL 14.79 0.19 1.30% 1.73 13.25%
USX CHINA 5184.25 -31.51 -0.60% 654.45 14.45%
EMERG MKTS 7026.33 1.86 0.03% 1021.02 17.00%

Market Report:

In economic news, weekly jobless claims came in at 351,000, the same level as the prior week. The four-week moving average fell 7,000 to 359,000, the lowest level since March 2008. The week also brought more supportive economic headlines from the U.S. and Germany, helping boost stocks and remind investors there is more to the world than just Greece.

Overall, the just completed week was a continuation of the market’s slow grinder higher and that’s really what we have here: A grinding, plodding market. To employ a baseball analogy, the current state of affairs in the U.S. equity market is like watching a big league pitcher who throws a lot of pitches, doesn’t strike a lot of hitters out, eats up a lot of innings but win a lot of games. The method isn’t all that attractive, but it’s the results that count.

Market results not nearly as impressive as last week

Every index we follow was in the green last week and as we reported then… not by insignificant numbers either.

This week is a different story indeed except for the S&P 500 which forged through a key level of 1350. The step-sister AMEX was the only key index to show more than a percentage point gain and our small cap bench mark Russell 2000 inched backward by a very slight 0.21% followed by the USX China index which gave back 31.51 points or 0.60%. Both are still well into double digit gains YTD.

Gold made a fairly nice move this week, closing Friday at $1,775.10…up $50.50. WTI Crude oil continued its upward moves… +$6.53, to close at $109.77, which is very close to that $110 number we predicted last week.

The dollar backed off slightly (-0.0174 or 0.7436 Euros); the 10-year bond closed up 0.235 to $100.219 and the 30-year bond gained 0.937 to close the week at $100.500.

The Bottom Line for Stocks:

While there are plenty of large-cap names that are NOT named Apple (Nasdaq: AAPL) that still look compelling, we would also say many of these names fall into the “plodding” category. What is evident is that now is as good of a time as any to be involved with energy stocks and there are scores of good buys to be found among micro-cap and small-cap energy names. Said differently, the micro-cap energy space is where the real big percentage gains can be had on the back of rising oil prices.

Another area of the micro-cap universe that looks quite attractive right now is the precious metals miners. According to some estimates, gold and gold miner stocks represent just 2% of all financial assets held in the entire world. Assuming that’s true, that is far too low of a percentage and also implies the gold bull market still has plenty of life left in it.

As we said last week, the combination of no bad news or no news at all out of Europe and continued good news regarding the U.S. economy would remain a delicious recipe for U.S. stocks. Fortunately, the S&P 500 has broken through 1,350 and the Dow keeps knocking on the 13,000 door.

Research and Editorial Staff
MicroCap MarkePlace