The research team at Bank of America Corp.’s (NYSE: BAC) Merrill Lynch is out looking for the market strength to continue. Keep in mind that this is not in a straight line. Its latest broad market analysis commentary even shows that the risk has built for a pullback, but not a major top in the stock market. The firm also offered seven mega-caps that it likes at current levels.
Monday’s report comes from Stephen Suttmeier on the technical side and Jue Xiong on the research side. Market breadth was referred to as stalled against the trading range highs up at 1,550 to 1,576 on the S&P 500 and noted that up-volume or weakened against down-volume. The firm noted that it would not take much to move its Volume Intensity Model to a negative reading, but there is also an underlying belief that the uptrend from November is intact as long as support at 1,525 holds.
Seven technically attractive mega-cap stocks were given to focus on now as a market theme. These currently have technically attractive chart patterns and tend to be considered underweighted by institutional investors relative to the S&P 500 benchmark weighting in the stock. Twenty-four names were highlighted in the report, but the seven mega-cap stocks the firm believes should be focused on now are McDonald’s Corp. (NYSE: MCD), 3M Co. (NYSE: MMM), Public Storage (NYSE: PSA), Simon Property Group Inc. (NYSE: SPG), AT&T Inc. (NYSE: T), Wal-Mart Stores Inc. (NYSE: WMT) and Valero Energy Corp. (NYSE: VLO). Note that Valero is the only one mentioned that does not carry a high dividend yield.
Investors who have wondered about gold might want to pay attention as well. Merrill Lynch said that the breakdown for 10-year Treasury yields imply relative underperformance for the financial stocks, while they imply outperformance from REITs, telecoms and utilities. Gold and silver are called near support with net large speculator positions in the contrarian buy zone, but of the two it is gold that has the better chart pattern. Gold support was put at $1,500 and silver at $26 to $27 per ounce.
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