CANSLIM SETUPS

Where We Are:

Taking a look at the broader market:

This week’s commentary will be short.

Successful speculation has more to do with observing than it does thinking.

It seems all bloggers want to talk about is why the market will sell off soon.

It will happen when it happens.

Recent distribution lends well to the Bears cause, but strong leadership keeps the Bull on pace.

The fact that the Nasdaq and Russell 2K are under performing the Dow is only a real concern if it carries over into the monthly rather than daily picture.

Technically speaking:

The Dow Industrial Average

($INDU), %, pegged another new high on its seven-week charge.

The S&P 500

($SPX), %, broke north of last week’s consolidation to hit a new high.

Nasdaq

($COMPQ), %, pulled back for the second week in a row.

Russell 2000

($RUT), %, also pulled back for the second week in a row.

Volume indications lean to the Bears favor, but their lack of severity is not enough to raise a Red Flag over. Dow with two days of accumulation, S&P 500 with four days of distribution in the last two weeks, and the Nasdaq with three days of distribution in the last tow weeks.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The U.S. Dolar Index ($DXC) moves off its lows, still under its 50-day MA.

The Gold & Silver Miners Index ($XAU) slipped below its major moving averages.

The Consumer Index ($CMR) and The Cyclical Index ($CYC) indexes hit new highs.

The Technology Index ($DJUSTC) finished the week unchanged after poking to a new high.

The Semiconductor ($SOX) sold off to just above its 50-day MA.

The Software Index ($GSO) broke north of a two-week consolidation pattern.

Telecom Index ($XTC) hit another new high as it begins to bust north of an upward-trending channel. You don’t see this happen much with indexes. At some point it may be recognized by technicians as either very bullish or an extreme that tips off a meltdown.

The Banking Index ($BKX) inch higher while forming the right side of a base.

The Broker Dealer Index ($XBD) pulled back for the second week in a row within a cup-and-handle pattern.

The Retail Index ($RLX) attempts to resume an uptrend after dipping below its 50-day MA.

The Healthcare Index ($HCX) holds strong near highs after last week’s pullback.

Biotechnology Index ($BKX) pulls back for the third week in a row.

Pharmaceutical Index ($DRG) attempts to regain highs after pulling back last week.

The REIT Index ($DJR) plunges below its 50-day MA.

The Transportation Index ($TRAN) holds near highs as it flirts with breaking out of a 12-week base.

The Airline Index ($XAL) struggles below its major moving averages.

The Defense Index ($DFX) inches higher.

The Energy Index ($IXE) puts in a solid week to the upside.

What Was Important About Last Week

STOCKS:

• Hewlett-Packard (HPQ) reported second quarter earnings of $0.70 per share, excluding non-recurring items, in line with consensus, and versus preannounced earnings per share of $0.69 to $0.70. Revenues rose 12.8% year over year to $25.5 billion versus consensus of $25.52 billion, and versus preannounced revenues of $25.5 billion to $25.55 billion. The company reaffirmed guidance for the third quarter, saying it sees earnings per share of $0.64 to $0.65 versus consensus of $0.65.
• Applied Materials (AMAT) reported Q2 (Apr) earnings of $0.34 per share, $0.06 better than the Reuters Estimates consensus of $0.28 (Excluding charges and including stock based compensation expense). Revenues rose 12.5% year/year to $2.53 bln (consensus $2.35 bln); gross margin rose 44.9%.
• Marvel (MRVL) reported Q1 revenues $635.1 mln vs $645.36 mln Reuters consensus. The co did not report EPS due to ongoing options investigation. “The growth in our Q1 revenues was limited due to an overall weaker demand environment across some of our markets.
• Nordstrom (JWN) reported Q1 (Apr) earnings of $0.60 per share, $0.03 better than the Reuters Estimates consensus of $0.57. Revenues rose 9.3% year/year to $1.95 bln vs. the $1.94 bln consensus. Co issued downside guidance for Q2, sees EPS of $0.70-0.73, excluding an $0.08 charge, vs. $0.76 consensus.

ECONOMY:

• Industrial production increased 0.7% in April versus a consensus expectation of 0.3%. In the past twelve months, industrial production is up 1.9%.
• Manufacturing production increased 0.5% in April, although it was revised down slightly in both February and March. A large part of the increase was due to a 3.3% gain in motor vehicles and parts. Excluding motor vehicles and parts, manufacturing output increased 0.3%.
• The production of high-tech equipment grew 2.6% in April and is up 21.6% versus a year ago.
• Capacity utilization rose to 81.6% versus a consensus forecast of 81.5%. In the manufacturing sector, capacity utilization increased to 80.2%.
• Housing starts increased 2.5% in April to 1.528 million units at an annual rate. The consensus had expected a slower 1.480 million rate. Starts are down 16.1% versus a year ago.
• Nationwide, single-family starts rose 1.6% and multiple-unit starts increased 6.3%. By region, the rise in starts was due to activity in the Northeast and West. Starts were essentially unchanged in the South and down in the Midwest.
• New building permits declined 8.9% in April to 1.429 million units at an annual rate, much slower than the consensus expected 1.520 million rate. Permits declined for both single-family and multiple-unit homes and are down 28.1% versus April 2006.
• The Consumer Price Index (CPI) increased 0.4% in April, slightly less than the consensus expected. The CPI is up 2.6% versus a year ago.
• Energy prices increased 2.4% in April. Excluding food and energy, the core CPI was up 0.2% in April, as the consensus expected, and up 2.3% versus a year ago.
• The rise in the core CPI was mostly due to lodging away from home (hotels), which increased 1.9%, and owners’ equivalent rent (what we theoretically pay ourselves to live in our own homes), which rose 0.2%.

What We’re Looking For This Week

Key earnings releases:

• MONDAY: Lowe’s Companies (LOW)
• TUESDAY: American Eagle Outfitters Inc (AEO), AutoZone Inc. (AZO), BJ’s Wholesale Club (BJ), Computer Sciences Corporation (CSC), Men’s Wearhouse (MW)
• WEDNESDAY: Abercrombie & Fitch Co. (ANF), Dick’s Sporting Goods, Inc. (DKS), Target Corporation (TGT), ZUMIEZ INC (ZUMZ)
• THURSDAY: Aeropostale, Inc. (ARO), AnnTaylor Stores (ANN), Barnes&Noble (BKS), Gap Inc. (GPS), Mylan Laboratories (MYL), Toll Brothers (TOL)
• FRIDAY: none

On the economic front we have potential market movers with:

• MONDAY: none
• TUESDAY: none
• WEDNESDAY: Crude Inventories
• THURSDAY: Durable Orders, Initial Claims, New Home Sales
• FRIDAY: Existing Home Sales

The Following Sections Are On Our Home Site:

• The Growth Stock Landscape
• What We Like – What We Have
• This Week’s Scans: • SETUPS • BREAKOUTS • BASE BUILDING • SHORTS

This Week’s Word On Discipline:

“Try not to become a man of success, but rather try to become a man of value.” – Albert Einstein

CANSLIM SETUPS