Securities Research Services

Thursday, December 14, 2006

Basic Materials Remains the Place to Be

Yesterday dip buyers propped up the market and most sectors closed strong. We noticed a subtle difference, however, between much of the broader market and those stocks in the basic materials sectors. Many of the breakouts we have been watching in the small caps have been coming back as scalpers take their profits and buyers fail to follow through. Many traders are being made to feel like they are trying to climb a greasy pole here. This is what happens when buying interest is waning.

We will probably get a Santa rally over the next few weeks, but the real strength has come from a rotation into the oils and other basic materials (except steel, which suffers from a poor outlook from sector leader NUE). As such, we should see the indices rise into January, but trading is going to be tough for those outside of the basic materials sectors, with just a few exceptions.

The failure of the semiconductors to participate in yesterday's late market strength is telling. Trading tech is sure to cause continued pain and frustration.

Note: We sent a near term recommendation to subscribers today. Please check your email for details.

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