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

Bears Got Squeezed, Bulls Take Over

The gains from August look paltry indeed when compared with the solid across-the-board gains of September. Nasdaq was the top index for the month, up over 4%, but all major indexes were up over 3%.

Growth handily beat value across every market cap, with the larger caps making the most gains. Large-cap growth stocks sported a 4.1% gain for the month, with the mid-cap growth index up almost 4%. Small-cap and micro-caps growth made a good showing as well, each with gains of almost 3%.

Value was no slouch either, where large-caps and mid-caps also held sway (large-caps were up 3%, mid-caps 2%). And, for the first time in several months, the small-cap and micro-cap value indexes both landed in positive territory.

As for specifics, the market continues to prefer strong cash flow growth, and GARP-like companies, but the new wrinkle was momentum, particularly in groups. Group and sector rotation was persistent throughout the month, led by Materials, Telecommunications and Information Technology. We believe these sectors will continue to drive the rally.

It seems appropriate that the reasonable valuations left in the wake of the summer doldrums should give rise to a full-fledged rally, and it would be surprising if this movement does not continue at least into the early weeks of October. Recall, however, that October has frequently delivered market-rocking events. The simmering subprime debacle and unrelenting global unrest provide fertile ground this October for some major unpleasant shocks. Hopefully, these will not occur but . . .

Next update: Second week in November.