Take time with a wounded hand

Traders,

Take time with a wounded hand, ’cause it likes to heal
Take time with a wounded hand, ’cause I like to steal
Take time with a wounded hand, ’cause it likes to heal, I like to steal
Stone Temple Pilots – “Creep”

Our current position:

SELLERS’ EDGE INTACT

In this week’s edition you will find:

  • Where We Are
  • What Was Important About Last Week
  • What We Are Watching For This Week
  • A Word On Discipline

The following sections are on our home site:

Where We Are:

Taking a look at the broader market:

The Bull Market that began in ’03 has been scarred deeply with blood red selling over the past several weeks.

But with the shape of most sectors far from a recognizable Bear Market, we’re looking for signs of resuscitation.

Thursday’s massive upside move was matched with heavy buying. While too soon from Wednesday’s key low to be considered a valid Follow Through Day (FTD), many sectors the attempted reversals from obvious trend-lines. Most notably, the S&P 500.

For the record, a FTD occurs after four days from a low, and within no more than seven days. It is marked by heavy volume with at least a 1.7% price gain. This tells us institutional money is supporting the market. The four day wait omits misreading any heavy short covering as real buying.

Recent buying of safe haven Consumer Staples resulted in a gain for the Dow Industrials, while riskier asset classes in the Technology sector sustained modest losses.

Should the Bull receive its life support from institutional grade buying, we expect a trend of defensive posturing with safe haven stocks to continue. Later stage Bull markets have historically supported them.

We’re also watching the 10-year Bond Yield as a potential threat that could create a significant shift in sentiment . A decisive move above a multi-year downward trend line would give us evidence of this.

As The Growth Stock Report specializes in growth stocks, we continue to keep a tight watch on that market.

Nic Inc. (EGOV) is an example of a growth stock that meets our strict fundamental criteria. It’s success or demise helps us determine the pace of others in the category.

EGOV: provides eGovernment services that enable governments use the Internet to provide various services to businesses and citizens in the United States.

Market Cap: 437.73M
Employees: 305
Qtrly Rev Growth (yoy): 39.60%
Revenue (ttm): 63.71M
Gross Margin (ttm): 48.84%
EBITDA (ttm): 18.36M
Oper Margins (ttm): 25.91%
Net Income (ttm): 10.18M
EPS (ttm): 0.165
P/E (ttm): 43.33
PEG (5 yr expected): 1.55
P/S (ttm): 6.70

EGOV is breaking out of a classic two-year base and show’s promise with recent institutional grade buying. Our initial profit target of 20% is set at 8.04. This is from a breakout buy at its pivot of 6.70.

Though stocks under $15 have a tendency to under perform those above, stocks setup like EGOV have a tendency to hit the $10 mark.

Technically speaking:

The Dow Industrial Average
($INDU), +1.1%, has rallied sharply to back above its 200-day moving average.

The S&P 500
($SPX), -0.1%, remains below its 200-day major moving average as it holds a multi-year trend line.

Nasdaq
($COMPQ), -0.2%, continues to trend below its 200-day moving average.

Russell 2000
($RUT), -1.2%, reversed to just under its200-day average mark.

Volume indications distribution across the major exchanges continues to weigh to the bear’s favor, though Thursday’s upside surge is poised to set a new tone.

Hi/Lo Ratio continues to post in negative territory.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 10-year Note Yield
($tnx) is back above its 50-day moving average, and threatens to launch decisively above a long-term trend line.

The U.S. Dollar Index
($USD) is hugging its 50-day moving average, poised to breakout of a cup-and-handle. Though a bullish looking pattern, overhead resistance makes it prone to failure.

The Gold Miners Index
($XAU) is just under its 200-day major average as it comes off major support around 120.

The Dow Jones AIG Commodity Index
($DJAIG) closed the week on its 200-day moving average. No pattern bias evident.

Consumer Staples
($CMR) reversed to its 50-day moving average in a show of the week’s top relative strength.

Consumer Cyclicals
($CYC) ducked just under its 200-day moving average before closing out above this mark.

Technology
($DJUSTC) is trending well blow its major moving averages.

The Semiconductor Index
($SOX) is also trending well below its major moving averages.

Banks
($BKX) are now above its 200-day averge, and below its 50-day average. The dominant trend remains up.

Broker Dealers
($XBD) closed just under the 200-day average, leaving a bullish spike from a long-term upward trend-line.

Retail
($RLX) moved slightly above the 200-day average before closing just below this mark. The long-term pattern for the sector show no bias with continued consolidation.

Healthcare
($HCX) continues to consolidate below its major moving averages. The trend is down as the 50-day sits beneath the 200-day.

Biotech
($BTK) also continues to consolidate below its major moving averages. The trend is down as the 50-day sits beneath the 200-day.

REIT’s
($DJR) appear to be forming a bullish inverted head-and-shoulders on the daily chart.

Homebuilders
($DJUSHB) continues to bea leader to the downside.

Transportation
($TRAN) is parked just below its 50-day moving average as it holds a bullish up-trend.

Airlines
($XAL) closed n its 50-day and 200-day averages, as the prior threatens to sink below the later.

Defense
($DFX) undercut its 200-day average before closing just below this mark.

Energy
($IXE) resumed to position above its 200-day average after testing below.

Utilities
($UTY) continue to trade near the upper-portion of a 10-month range, forming a bullish looking base.

The top 10 industry groups from the 6 month RS screen are:

  1. DRUG RELATED PRODUCTS
  2. MACHINE TOOLS ACCSORIE
  3. STEEL IRON
  4. INTERNET SERVICE PROVI
  5. SPECIALTY RETAIL OTHER
  6. CATALOG MAIL ORDER HOU
  7. ADVERTISING AGENCIES
  8. AUTO DEALERSHIPS
  9. MOVIE PRODUCTION THEAT
  10. AUTO PARTS

What Was Important About Last Week

STOCKS:

  • Microsoft (MSFT) founder and Chairman, Bill Gates, will transition out of a day-to-day role in the co to spend more time on his global health and education work at the Bill & Melinda Gates Foundation.
  • Oracle Corp (ORCL) preannounced Q4 results above consensus and prior guidance. Co sees Q4 non-GAAP EPS of $0.29 (consensus $0.27), up from prior guidance of $0.26-0.28.
  • Adobe Systems(ADBE) reported Q2 (May) earnings of $0.31 per share, a penny better than the Reuters Estimates consensus. Revenues rose 28.1% year/year to $635.5 mln (consensus $644.9 mln).
  • KB Home (KBH) reported Q2 (May) earnings of $2.46 per share, $0.03 better than the Reuters Estimates consensus of $2.43.
  • Cardinal Health (CAH) reaffirmed that FY06 EPS is expected to be in the upper half of a previously provided range of $3.30 to $3.55, excluding special items.reaffirmed that FY06 EPS is expected to be in the upper half of a previously provided range of $3.30 to $3.55, excluding special items.
  • Best Buy (BBY) said its fiscal first-quarter
    profit jumped 38% as customers shelled out for big purchases like flat-panel
    televisions. Best Buy earned $234 million, or 47 cents a share, in the
    three months ended May 27, up from $170 million, or 34 cents a share,
    during the same period last year. Revenue surged almost 14%.
  • Lehman Brothers (LEH) said its earnings shot up 47% in its fiscal second
    quarter amid strength in its capital markets and investment-banking
    businesses. Net income was $1 billion for the period ended May 31, or $1.69 a
    share, compared with $683 million or a split-adjusted $1.13 a share a
    year ago.

ECONOMY:

  • Core CPI data posted a third straight 0.3% increase. The rate of increase in the core rate the past three months was 3.8% and the year-over-year increase in the core rate rose to 2.4%.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: CarMax, Inc (KMX), Circuit City Stores Inc. (CC),
  • TUESDAY: Apollo Group (APOL), Christopher & Banks (CBK), The Kroger Co. (KR).
  • WEDNESDAY: Bed Bath & Beyond Inc. (BBBY), Darden Restaurants (DRI), Jabil Circuit, Inc. (JBIL).
  • THURSDAY: Family Dollar (FDO), Oracle (ORCL).
  • FRIDAY: none

On the economic front we have potential market movers with:

  • MONDAY: none
  • TUESDAY: Building Permits, Housing Starts,
  • WEDNESDAY: Crude Inventories
  • THURSDAY: Initial Claims, Leading Indicators
  • FRIDAY: Durable Orders

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“Habit is habit and not to be flung out of the window by any man, but coaxed downstairs a step at a time.” – Mark Twain

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