Clearly Tuesday wasn’t the follow-through day on last Friday’s weakness; stocks were up pretty handily. Nevertheless, the move only to Thursday’s highs coupled with mediocre volume still leaves a move lower – even if tempered – as the most likely possibility for the foreseeable future.

As promised in the prior update, we want to go ahead and outline what we intend to do when the time comes…. when stocks sink and prep for a rebound. (Better beforehand than in the heat of the moment.) So, let’s do just that, starting with the watchlist.

Updated Watchlist

Our last update to the watchlist - a list of stocks we’re considering buying, but want to observe and further evaluate before doing so - was posted on January 8th. They were all additions to the prior group, which was updated on December 2nd, and the lone addition of Community Bank System Inc. (NYSE:CBU), which was made on December 29th. So, as of right now, our watchlist is pretty lengthy (yet each name continues to hold promise).

• Fidelity National Information Services Inc. (FIS)
• VCA Antech Inc. (WOOF)
• Harris Stratex Networks, Inc. (HSTX)
• Integrated Device Technology Inc. (IDTI)
• Belo Corp. (BLC)
• MCG Capital Corporation (MCGC)
• Community Bank System Inc. (CBU)
• Healthspring Inc. (HS)
• Idex Corp. (IEX)
• A.M. Castle & Co. (CAS)
• Frontline Ltd. (FRO)
• Nisource Inc. (NI)
• Republic Services Inc. (RSG)

Bear in mind we may or may not tap all of those stocks. In fact, I’d be very surprised if we ever owned them all in the near future. It’s just always better to have more ideas than you can use than the other way around.

Remember, we’re waiting for the right opportunity with these watchlist names whether it be technical, fundamental, or both. We’re simply trying to pick an ideal entry point; a marketwide pullback will help to that end.

Sector/Industry Ideas

In the meantime, a handful of sector and industry charts caught my eye as potential breakout groups. Buried within them are more compelling stock ideas; some may already be on our watchlist.

Agriculture

It looks as if these stocks have once again caught themselves before a small pullback turned into a big one. If the pattern holds up, the index will rebound here and make another higher high within a few weeks.

Agriculture - 01/19/10

Consumer Electronics

A not-awful holiday shopping season was actually a great one for consumer electronics. This may be a sign of improved consumer spending in the bigger picture (even though consumer spending slipped last month). If the index moves above November’s highs, I’ll consider it a technical buy.

Consumer Electronics - 01/19/10

These industry charts tell us which groups are starting to accelerate and which ones still have some room left to run (most indices don’t attract attention until the rally is almost over, so we seek young and emerging trends). What they don’t tell us is the underlying fundamental story, which is why we can only use these charts as a starting point for picking stocks…. an accelerating stock will only maintain speed if the underlying results support a rally.

I didn’t add the charts here, but I’ve also found a few reasons to like chemicals and paper/forest products.

By the way, all the specific sectors and groups I discussed in the recent webinars are still under the same opinion. And, don’t forget the 2010 sector outlook I posted back on December 7th either.  Those themes pretty much aligned (though not precisely) with the comments I made in the webinars.