Conducive Environment For Growth Stocks

Traders,

They got to asking what if they had to scratch-n-sniff
To find out what it is they are after
— Stevie Ray Vaughan “Scratch-n-Sniff”

Market Bias:

BUYERS’ 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

CANSLIM SETUPS

Where We Are:

Taking a look at the broader market:

The Bull gathers institutional support while scratching out new highs on the Dow and S&P 500.

The critical components of our analysis uses price and volume to measure market conditions.

In fear of being steam-rolled, we never want to take the other side of institutional trades. Wherever the big guys are buying, we want to be buying.

We’ve been cautious over the past few weeks due to heavy selling, as well as a lagging Tech sector.

While the trend is undeniably up, there is no timing a correction perfect. With all of Wall St. looking for some sort of pullback, the market refuses to give it. Markets have a knack for finding the way to burn the most amount of people, and this is another example.

At this rate we continue to look for some indication of a climax top. High volume and a media supported celebration of new highs would give evidence of this. But it’s just not there.

In lieu of recent accumulation, we’re putting the Green Flag back up.

The Transportation Index’s new high is another strong vote of confidence.

But on a slight bearish note, the number of New Highs on the exchanges slacked a touch against new highs made on the Dow and S&P 500. This bearish divergence as been an early warning of price decline in the past, but as always, there’s no use in trying to time it right.

In looking at key news events, Federal Reserve Chairman Bernanke this past week said, “some indications that inflation pressures are beginning to diminish.” Hopes of a soft-landing for a cooling economy are widespread.

The environment for Growth Stocks is optimistic. Studies have shown soft-landings are conducive for our strategy. With attractive CANSLIM setups taking shape, this is of course great to hear.

It should also be noted that analysts continue to cut U.S. earnings estimates. If this is the case, the market doesn’t seem to care.

Technically speaking:

The Dow Industrial Average

($INDU), +1.5%, extends a solid uptrend as it cruises to a new high.

The S&P 500

($SPX), +1.2%, extends a solid uptrend as it cruises to a new high.

Nasdaq

($COMPQ), +1.5%, barely edges out last week high as it lags the other indexes.

Russell 2000

($RUT), +1.4%, just about matches last week’s high as it holds a solid uptrend.

Volume indications weigh to the Bulls as multiple accumulation days are has across the major indexes.

Key stock chart action for the week:

Charts courtesy of Stockcharts.com

The U.S. Dollar Index drops to close below its 50-day MA for the first time in almost two months.

The Gold & Silver Miners Index moves further above its major MA’s, closer to negating a bearish head-and-shoulders pattern on the weekly chart.

The consumer Staples and Cyclicals indexes hit new highs.

Semiconductors rally and close above the 50-day MA, as they show significant relative-weakness against the broader market.

Banks hit a new high.

Retail hits a new high.

Healthcare consolidates for the fifth consecutive week.

Biotechnology consolidates in bullish base formation.

REITs pullback after five weeks of strong gains.

Transportation hits a new high.

Airlines consolidate at the 50-day MA, flirting with a potential technical breakdown.

Defense hits a new high.

Energy consolidates at the 50-day MA.

What Was Important About Last Week

STOCKS:

  • Network Appliance (NTAP) reported third quarter non-GAAP earnings per share of $0.29. That was $0.01 better than $0.28 First Call non-GAAP consensus. Revenues rose 35.8% year over year to $729.3 mln versus consensus of $703.4 mln.
  • Nutrisystem (NTRI) reported fourth quarter earnings of $0.53 per share on revenues of $133.6 mln, up 92% year over year. The company had preannounced earnings per share of $0.50 to $0.53 on revenues of $131 mln to $133 mln.
  • Baidu (BIDU) reported fourth quarter non-GAAP earnings of $0.48 per share, excluding non-recurring items, $0.12 better than consensus. Revenues rose 143.4% year over year to $34.8 mln versus consensus of $34.6 mln.
  • MetLife Inc. (MET) reported fourth quarter earnings of $1.36 per share, excluding non-recurring items, $0.18 better than consensus. Revenues rose 11.9% year over year to $12.89 bln versus consensus of $12.65 bln.
  • NVIDIA Corp. (NVDA) Reported fourth quarter earnings of $0.22 per share, excluding a $0.05 tax benefit, versus a $0.24 consensus. Revenues rose 12.6% year over year to $317.4 mln versus the $320.3 mln consensus.
  • Applied Materials (AMAT) reported first quarter earnings of $0.27 per share, excluding a non-recurring gain, but including option expense that analysts were including in their estimates. That was in line with consensus of $0.27. Revenues rose 22.6% year over year to $2.28 bln versus consensus of $2.35 bln.
  • Priceline.com Inc. (PCLN) reported fourth quarter earnings of $0.58 per share, excluding non-recurring items, $0.18 better than consensus. Revenues rose 27.6% year over year to $260.1 mln versus $235.9 mln consensus.
  • Cephalon Inc.(CEPH) reported fourth quarter earnings of $1.06 per share, $0.26 better than consensus of $0.80. Revenues rose 50.1% year over year to $484.7 mln versus consensus of $431.1 mln.
  • Bob Evans (BOBE) reported third quarter earnings of $0.49 per share, excluding non-recurring items, $0.10 better than consensus. Revenues rose 5.1% year over year to $419.9 mln versus consensus of $427.2 mln. The company issued in-line guidance for the full year of 2007.
  • California Pizza (CPKI) reported fourth quarter earnings of $0.19 per share, $0.03 better than consensus. Revenues rose 16.4% year over year to $146 mln versus consensus of $144.8 mln. The company issued downside guidance for the first quarter.
  • Denny’s (DENN) reported fourth quarter earnings of $0.02 per share, $0.01 better than consensus. Revenues rose 0.4% year over year to $244.4 mln versus consensus of $246.6 mln. The company issued downside guidance for the full year of 2007

ECONOMY:

  • Housing starts slid 14.3% in January to 1.408 million units, the lowest level since August 1997. Expectations called for a decline of 2.6% to 1.6 million. The decline in starts occurred across almost all regions and for both single-family and multiple-unit structures.
  • New building permits fell 2.8% in January to 1.568 million units, slightly worse than expectations. Single-family units accounted for all of the drop. Building permits were down 28.6% versus January 2006.
  • Industrial production declined 0.5% in January, the largest drop since September 2005. In the past twelve months, industrial production is up 2.6%.
  • Manufacturing production fell 0.7% following an upwardly revised gain of 0.8% in December. Manufacturing is up 1.8% versus a year ago.
  • Within manufacturing, motor vehicle production fell 6.0%, the steepest one-month decline since 1998. The production of high-tech equipment continues to stand out, rising 1.7% in January and 26.1% versus a year ago.
  • Capacity utilization declined to 81.2%. The consensus forecast was 81.7%. In the manufacturing sector, capacity utilization dropped to 79.6%.
  • January retail sales were unchanged versus a consensus expected gain of 0.3%. Retail sales were up 2.3% versus January 2006.
  • December retail sales were revised up to a gain of 1.2% from an originally estimated increase of 0.9%. The upward revision was due to much stronger sales of autos and building materials than originally estimated.
  • The largest gains in January sales were in general merchandise stores (department stores and warehouse clubs), building materials, and grocery stores. The largest declines were in motor vehicles and gas station sales, which fell 1.3% and 0.7% respectively.
  • Producer Price Index (PPI) fell 0.6% in January. The PPI is up only 0.2% versus a year ago but has climbed 8.7% at an annual rate in the past three months.
  • Consumer goods prices, excluding energy, increased 0.5% in January and are up 4.1% at an annual rate in the past six months. Capital equipment prices increased 0.2% in January and are up at an annual rate of 3.2% in the past six months.
  • “Core”intermediate goods prices were unchanged in January, are down at a 1.4% rate in the past three months, but up 3.8% versus a year ago. “Core”crude prices increased 1.6% in January, are up at a 10.5% rate the past three months, and are up 17.9% versus a year ago.
  • The trade deficit in goods and services expanded to $61.2 billion in December from $58.1 billion in November. The consensus had expected a smaller increase to $59.7 billion.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: none
  • TUESDAY: Boyd Gaming (BYD), Century Aluminum (CENX), Fossil, Inc. (FOSL), Home Depot Inc (HD), InterContinental Hotels Group (IHG.L), United Natural Foods (UNFI), Wal-Mart Stores Inc. (WMT)
  • WEDNESDAY: Agnico-Eagle Mines Limited (AEM), Analog Devices Inc. (ADI), FelCor Lodging Trust Incorporated (FCH), Group 1 Automotive (GPI), Host Hotels & Resorts Inc. (HST), Jack in the Box (JBX), LoJack (LOJN), The TJX Companies, Inc. (TJX), Whole Foods Market (WFMI)
  • THURSDAY: Barrick Gold (ABX), DiamondRock Hospitality Company (DRH), Dynamic Materials (BOOM), H&R Block, Inc. (HRB), LaSalle Hotel Properties (LHO), Nanophase Technology (NANX), Newmont Mining Corporation NEM), Noble Energy, Inc. (NBL), Patterson Dental (PDCO),
  • FRIDAY: Clear Channel Communications (CCU)

On the economic front we have potential market movers with:

  • MONDAY: none
  • TUESDAY: none
  • WEDNESDAY: Core CPI, CPI, Leading Indicators, Crude Inventories, FOMC Minutes
  • THURSDAY: Initial Claims, Help-Wanted Index
  • FRIDAY:

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“If you do what you’ve always done, you’ll get what you’ve always gotten.” – Anthony Robbins

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