CANSLIM SETUPS

Where We Are:

Taking a look at the broader market:

The strong rallies off Thursday’s lows give the major indexes an appearance of a durable bottom.

But appearance means little if it’s not backed by substance.

The market’s rubber band of price-action was stretched so far south, a strong rally was inevitable.

The Fed’s move on Friday to lower the discount rate is hoped to provide banks the necessary liquidity to keep business humming.

Only time will tell to see how effective the Fed’s measures are. The momentum of bad news from the credit industry is unlikely to pull a sharp u-turn.

From the trader’s standpoint, watching volume on the indexes becomes very crucial.

Should we rally, we can’t be Bulls unless strong buy-volume suggests institutions are in favor of Thursday’s low.

We won’t raise the Yellow or Green Flag until we have a Follow Through Day (strong buy-volume that supports a major upside day after four days of a low).

If we see buy-volume dry up we will be suspect of the rally, and potentially have some decent shorting opportunities.

Technology has been a relative strength winner, and we see a number of issues that have yet to show topping action: INTC, IBM and CSCO.

But the bellwether in Tech to watch is HPQ, which is consolidating after posting stellar earnings.

These names are candidates for Leadership to pave the way up for another Bull leg.

Technically speaking:

The Dow Industrial Average

($INDU), -1.2%, undercuts its 200-day average before staging a sharp rally.

The S&P 500

($SPX), -0.5%, sinks well below its 200-day average before retracing to just under this important mark.

Nasdaq

($COMPQ), -1.6%, also sinks well below its 200-day average, but retraces to just above this important mark.

Russell 2000

($RUT), -0.3%, sinks well below its 200-day average before retracing to just under this important mark.

Volume indications

Key chart action for the week:

Charts courtesy of Stockcharts.com

The U.S. Dolar Index ($DXC) regains ground above its 50-day average, yet remains in a downtrend with both averages in decline.

The Gold & Silver Miners Index ($XAU) craters to the bottom of its 18-month range.

The Consumer Index ($CMR) sinks below its 200-day average before retracing to just under this important mark.

The Cyclical Index ($CYC) also sinks below its 200-day average, but retraces to just above this important mark.

The Technology Index ($DJUSTC) attempts to rally off its 200-day average.

The Semiconductor ($SOX) also attempts to rally off its 200-day average.

The Software Index ($GSO) slides and closes below its 200-day average.

Telecom Index ($XTC) attempts to bounce off its 200-day average.

The Banking Index ($BKX) rallies for the second week in a row and closes just below its 50-day average.

The Broker Dealer Index ($XBD) rallies off lows, yet remains well below its averages.

The Retail Index ($RLX) also rallies off lows, yet remains well below its averages.

The Healthcare Index ($HCX) also rallies off lows, yet remains well below its averages.

Biotechnology Index ($BKX) consolidates below its major moving averages.

Pharmaceutical Index ($DRG) rallies off lows, yet remains well below its averages.

The REIT Index ($DJR) consolidates near yearly lows.

The Transportation Index ($TRAN) rallies off lows, yet remains well below its averages.

The Airline Index ($XAL) also rallies off lows, yet remains well below its averages.

The Defense Index ($DFX) bounces off its 200-day average.

The Energy Index ($IXE) also bounces off its 200-day average.

What Was Important About Last Week

STOCKS:

• Hewlett-Packard Co. (HPQ) reported Q3 (Jul) earnings of $0.71 per share, excluding non-recurring items, which was $0.05 better than the Reuters consensus. Revenues climbed 15.9% year/year to $25.38 bln vs. the $24.13 bln consensus.
• Kohl’s Corp. (KSS) reported Q2 (Jul) earnings of $0.83 per share, $0.01 better than the Reuters consensus. Revenues rose 189.6% year/year to $3.59 bln vs. the $3.62 bln consensus. Notably, the company issued downside guidance for Q3, seeing EPS of $0.67-0.71 vs. $0.75 consensus.
• Nordstrom Inc. (JWN) reported Q2 (Jul) earnings of $0.70 per share, excluding items, which is even to the Reuters consensus of $0.70. Revenues rose 5.2% year/year to $2.39 bln vs. the $2.35 bln consensus.
• Network Appliance Inc. (NTAP) reported Q1 (Jul) earnings of $0.20 per share, excluding non-recurring items, $0.01 better than the consensus of $0.19. Revenues rose 10.9% year/year to $689.2 mln vs. the $686.4 mln consensus. Company also issued in-line EPS guidance for Q2; it sees EPS of $0.24-0.26, ex-items, vs. $0.25 consensus.
• Applied Materials, Inc. (AMAT) reported Q3 (Jul) earnings of $0.35 per share, excluding non-recurring items, but including $0.02 of option expense, which is $0.03 better than the Reuters estimate of $0.32. Revenues rose 0.7% year over year to $2.56 bln vs. the $2.53 bln consensus.
• Agilent Technologies Inc. (A) reported Q3 (Jul) earnings of $0.45 per share, including charges and stock based compensation expense, which may not be comparable to the Reuters consensus of $0.43 (Briefing.com note: Agilent also reported non-GAAP EPS of $0.48, which is not comparable to consensus as it excludes stock based compensation expense, but is included in consensus).

ECONOMY:

• Housing starts declined 6.1% in July to 1.381 million units at an annual rate, below consensus expectations of a 1.400 million rate. Starts are down 20.9% versus a year ago.
  The decline in starts in June was due to both single-family homes (down 7.3%) and multi-family units (down 1.6%). By region, the drop in starts was concentrated in the South (down 11.0%). Starts also declined in the West but were up in the Midwest and close to unchanged in the Northeast.
• New building permits declined 2.8% in July to 1.373 million units at an annual rate, slower than the consensus expected 1.400 million rate. Permits are down 22.6% versus last year, 24.0% for single-family units.
• Industrial production was up 0.3% in July, as the consensus expected. In the past three months, industrial production is up at a 2.9% annual rate.
  Manufacturing production increased 0.6% in July and is up at a 5.0% annual rate in the past three months. The production of high-tech equipment grew 1.5% in July and is up 17.5% versus a year ago.
• Capacity utilization increased to 81.9% versus a consensus forecast of 81.7%. In the manufacturing sector, capacity utilization rose to 80.7%.
• The Consumer Price Index (CPI) increased 0.1% in July, as the consensus expected. The CPI is up 2.4% versus a year ago.
• Energy prices declined 1.0% in July. Excluding food and energy, the core CPI was up 0.2%, as the consensus expected. The core CPI is up 2.2% versus a year ago.
• The Producer Price Index (PPI) increased 0.6% in July versus a consensus expected gain of 0.2%. The PPI is up 3.9% in the past twelve months (seasonally adjusted) and has climbed at an annual rate of 5.2% in the past three months.

What We’re Looking For This Week

Key earnings releases:

• MONDAY: Lowe’s Companies (LOW)
• TUESDAY: American Eagle Outfitters Inc (AEO), Analog Devices Inc. (ADI), BJ‘s Wholesale Club (BJS), Target Corporation (TGT)
• WEDNESDAY: Abercrombie & Fitch Co. (ANF), Blue Coat Systems (BCSI), Foot Locker, Inc. (FL), Hot Topic (HOTT), Limited Brands (LTD), Ross Stores, Inc. (ROST), Toll Brothers (TOL)
• THURSDAY: Brocade Communications Systems, Inc. (BRCD), Gap Inc. (GPS)
• FRIDAY: AnnTaylor Stores (ANN)

On the economic front we have potential market movers with:

• MONDAY: Leading Indicators
• TUESDAY: none
• WEDNESDAY: Crude Inventories
• THURSDAY: Initial Claims, Leading Indicators
• FRIDAY: Durable Orders, New 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:

“Simulated disorder postulates perfect discipline; simulated fear postulates courage; simulated weakness postulates strength.” – Lao Tzu