What the Market Wants - Monthly Analysis of the Market Based on Sabrient Filters

The market's three-month winning streak screeched to a halt in June. In fact, the brakes were applied so hard that literally every equity index that we track was down for the month. Interestingly, the losses suffered by the market were inversely proportional to market cap. That is, micro-caps were down the least, at 1.03 percent, while large-caps lost 2.03 percent and small-caps and mid-caps fell somewhere in between.

The symmetry of June's losses versus the gains of the past 12 months was even more interesting. During the previous 12 months, the mid-cap value index had the highest gains and the large-cap value index, the second highest gains. In June, the mid-cap value index lost the most, 3.04 percent, while the large-cap value index came in second, with a loss of 2.48 percent.

Coincidence? Probably not. Consider that financial institutions, which are primarily large and mid-cap stocks, were the most harmed by the recent substandard mortgage crisis, and you could conclude that June's losses were the result of a profit-taking sell-off generated by the debacle in substandard mortgages.

It should be noted that the Nasdaq Composite, heavily weighted toward growth stocks, almost eked out a profit for the month (it was down only 0.05 percent). Indeed, growth outperformed value in every cap by substantial margins, which can probably be attributed to the fact that value had been up the most in previous 12 months. Of course, the tech sector is not susceptible to mortgage crises and other interest rate concerns as are the broad-based non-technology sectors.

All in all, June was not too bad a month, since the broad losses appear to be a typical profit-taking reaction to a shock. In the current market, there appears to be a fairly clear preference for technology stocks and continuing favor for strong cash flow growth. So the rest of the summer could well see a decent market. Just keep in mind that the substandard mortgage crisis is not yet fully resolved.

Next update: Second week in August.