4 Stocks for a Soft Market

06/23/2011 10:30 am EST

Focus: STOCKS

Jon Markman

Editor, Trader's Advantage

Just because the market can't find its feet doesn't mean there aren't stocks with traction, writes Jon Markman of Trader's Advantage.

Many large tech and consumer stocks on the Nasdaq are really breaking down now.

They include NVDIA (NVDA) and eBay (EBAY), which we recently added to our short-sell list, as well as Wynn Resorts (WYNN), which we have been short for a while.

If Nasdaq-100 bulls don't step up and buy now, they are going to abandon an uptrend that has held since the March 2009 low. That will provide a strong signal, once again, that techs are in for a long, hard summer.

One after another, big tech favorites like Google (GOOG), Microsoft (MSFT), Cisco (CSCO) and Research in Motion (RIMM) have been butchered. They are not improving, and they are not even basing. So far, as seen in RIMM trading after hours, the charts are actually getting worse.

In summary, it's possible that the tech-heavy Nasdaq could put in a "blow-out low" in coming days, following a terrible RIMM earnings report last Thursday. But if not…well, stocks will continue to be cut in value until investors believe a second-half growth slowdown is fully discounted—and then some.

At this point, I could pile on with more data points about the weakness of the economy, but instead, let's take this opportunity to talk about some positives. Because there are quite a few—way more than you might suspect—at a time when the financial news seems to be a drumbeat of deadbeats delivered by dodo birds.

Leaning on guidance from independent ISI analysts in New York, whose reports are popular on the Street, here are some upbeat news items to put on your watch list for the next weeks:

  • Vehicle production in July is scheduled to jump 23.8% month over month, which could lift the widespread view that the "soft patch" is ending.
  • The debt ceiling issue could be resolved for this year and next, and material debt reduction over the next decade agreed upon.
  • New stimulus could be drummed up by the White House and Fed, including a payroll tax cut for businesses and a "stealth" continuation of parts of QE2 by central bankers in the form of reinvestment of interest on bonds it holds.
  • Gasoline prices could dive lower in the wake of increased Saudi production, a release from the Strategic Petroleum Reserve, and the departure of Muammar Gaddafi from Tripoli.
  • Lower gasoline prices would predict a second straight month of quiescent inflation readings around the world for May and June.
  • Speculation that the European Central Bank will stop tightening could sweep markets.
  • Regulators could agree to limit bank-capital requirements to 2% to 2.5%, rather than the 3% expected at present.
  •  Speculation could surface that China's economy is slowing enough to allow policymakers to stop tightening.

The economy is definitely softening, but there are a lot more positives than most people seem to recognize. Right now, bulls and bears are duking it out in the stock market over competing views of the second-half economic growth rate.

The bears are winning, as share prices are discounting a worst-case scenario—and maybe the worst case will play out, who knows?

But there is another side to this story, and that is why companies like McDonalds (MCD), Colgate Palmolive (CL), Altria (MO), and Tiffany & Co. (TIF) continue to perform well.

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