Stocks Plays for the Coming Administration

The next major economic policy will be a state health care system with specific focus on universal health care for minors. Determining a specific strategy for investing in these changes is a little foggy at the moment until we see more information. With Obama's focus on children's health care, I would expect that manufacturers of pediatric health care products, including pharmaceuticals, would do well, along with the producers of generic drugs, and we will look at these opportunities in the future as the plans become clearer.

I will keep you abreast of opportunities that will come from the likely sweeping changes that are likely to come over the next year.

OK, let's take a look at the current market conditions since the election.

The market did not respond very well to the election when it opened last Wednesday and stayed in a bad mood on Thursday, cumulating in over a 10% loss in two days. Now that is not what I would call an open-arms welcome from Wall Street. We had the appearance of a pretty good day on Friday: The weak jobs report was already priced into the market, and after the figures were announced, most of the averages bounced up almost 3%.

Unfortunately, we have some underlying problems which I will get to in a moment, but first I want to look at a few of my short-term indicators.

S&P 500

Click here for larger image.

Source: TC2000

You can see from the chart of the S&P 500 that the stochastic and MACD have remained in positive territory during the recent selloff. The rebound last Friday helped build a very short-term support level.

The intermediate-term support lies at the October lows with intermediate-term resistance at the October and November highs. It looks to me that we may be in for sideways consolidation if the November lows continue to hold. For an intermediate-term rally to develop we must decisively break above 1,000 on increasing volume.

---

Nasdaq

Click here for larger image.

Source: TC2000

---

The same type of action is appearing in the Nasdaq Composite, along with just about every other average out there. You can see that both indicators shown here also have continued to remain positive with upside resistance around the 1780 level.

Here is the problem that I see in all this. These indices have declined on heavy volume last week and rallied Friday on low volume. This is not positive bull market action. Remember what I always preach, price and volume must confirm any fundamental or technical analysis.

The other problem that I continue to find is that only a few stocks are making new highs, and very few are forming attractive bases. I also don't see the fundamental environment improving, with earnings still declining and P/Es that appear way too high. I believe that in most cases the appearance of "value stocks" in the market is deceptive, and they will become expensive as earnings implode during the current recession and worldwide slowdown.

For now, I will keep my small long positions on the index ETFs, but my finger is on the trigger if we see further weakness. Bottom line is this is just a short-term bounce in a bear market. Stay defensive and cautious.

---

Know What You Own: Utility companies that could feel the effects of carbon emission permits include Exelon (EXC - commentary - Cramer's Take), ConEd (ED - commentary - Cramer's Take) and Duke Energy (DUK - commentary - Cramer's Take). Solar plays include First Solar (FSLR - commentary - Cramer's Take). Makers of generic pharmaceutical drugs include Teva Pharmaceutical (TEVA - commentary - Cramer's Take), Simcere (SCR - commentary - Cramer's Take) and Caraco (CPD - commentary - Cramer's Take).

---

At time of publication, Manning had no positions in stocks mentioned, although holdings can change at any time.

Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.