Mortgaging the Future

 | Aug 28, 2012 | 10:50 AM EDT  | Comments
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The market is doing a fine job of shaking off a slow start and weaker-than-expected consumer confidence. The old adage "Don't short a dull market" comes to mind as buyers step up and leave the bears frustrated once again. A case can be made for a slow drift lower in this atmosphere, but it looks like the bears are fodder for another short squeeze.

Despite the gloomy confidence numbers, there's relative strength in retail again. That has been a leading sector lately, and seems to reflect a level of optimism that is not showing up in the economic reports.

Many seem anxious to fight this market, but I have no interest in betting against the potential for QE3. The only way we don't see it is if we get strong economic news, so it's a win-win situation for the bulls.

One way I'm looking to play potential QE3 is with mortgage-servicing stocks. I anticipate that there will be some focus on buying mortgage bonds, which will help this sector. My two plays in the group are Nationstar Mortgage (NSM) and Home Loan Servicing Solutions (HLSS).

Nanosphere (NSPH), which I've discussed a number of times lately, has broken out and there's continued strength in the momentum favorites like Michael Kors (KORS), Sarepta Therapeutics (SRPT) and Mellanox Technologies (MLNX).

The market may be very slow and volume light, but it continues to act in a very positive manner. Don't be too anxious to fight it.

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