CANSLIM SETUPS

Where We Are:

Taking a look at the broader market:

Aggressive biding leads to new highs for the major indexes.

Solid support of Tech issues bodes well with nearly every sector posting gains.

This summer is making for a hot one for traders.

Recent distribution followed buy accumulation makes for a potent volatility.

With earnings season taking form we might expect to see more of the same.

A record number of short sellers most likely has added to the buying pressure as they’re squeezed out of their positions.

We are also seeing Big Caps take charge over Small Caps.

Financial sectors showing relative weakness don’t appear to be much of a threat to the broader market as subprime fears have had time to be digested.

But keep in mind anything can happen. A revaluation of subprime bond packages bought by Wall Street could have an imploding effect.

Basically the mortgage pools bought by investment banks trade so illiquid that they’re valued on default rates.

Should the bonds be revalued to a poorly bid market for them, many balance sheets will pay the consequences. The scope of the issue is unclear, but at this juncture we’re not seeing any panic.

Technically speaking:

The Dow Industrial Average

($INDU), +2.2%, screams to a new high.

The S&P 500

($SPX), +1.4%, hits a new high.

Nasdaq

($COMPQ), +1.5%, leads the indexes higher as it continues on a three week rally.

Russell 2000

($RUT), +0.4%, hits a new high, though shows relative weakness in posting a small gain for the week.

Volume indications favor the Bulls for the week.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The U.S. Dolar Index ($DXC) hits a new low for the year.

The Gold & Silver Miners Index ($XAU) works its way up the right side of a new year-long base.

The Consumer Index ($CMR) regained ground above its 50-day moving average.

The Cyclical Index ($CYC) hits a new high.

The Technology Index ($DJUSTC) hits a new high.

The Semiconductor ($SOX) hits a new high for the year as it gains on last year’s high.

The Software Index ($GSO) consolidates on its 50-day SMA, just under new highs.

Telecom Index ($XTC) consolidates above its 50-day SMA, just under a new high.

The Banking Index ($BKX) rallies to close just under its 50 and 200-day averages.

The Broker Dealer Index ($XBD) consolidates on its 50-day SMA, just under new highs.

The Retail Index ($RLX) consolidates on its 50-day SMA, just under new highs.

The Healthcare Index ($HCX) consolidates under its 50-day SMA, just under new highs.

Biotechnology Index ($BKX) consolidates between under 50-day SMA and above its 200-day SMA.

Pharmaceutical Index ($DRG) rally off a 30-day low to close just under its 50-day SMA.

The REIT Index ($DJR) rally off a 30-day low to close just under its 50-day and 200-day SMA’s.

The Transportation Index ($TRAN) hits a new high.

The Airline Index ($XAL) remain in a downtrend with the 50-day SMA under the 200-day SMA.

The Defense Index ($DFX) hits a new high.

The Energy Index ($IXE) hits a new high.

What Was Important About Last Week

STOCKS:

• Genetech (DNA) reported Q2 (Jun) earnings of $0.78 per share, excluding non-recurring items, and excl option expense, $0.07 better than the Reuters Estimates consensus of $0.71. Revenues rose 36.6% year/year to $3 bln vs the $2.85 bln consensus. Co issued in-line guidance for FY07, sees EPS of $2.85-2.95 vs. $2.91 consensus.
• Yum! Brands (YUM) reported Q2 (Jun) earnings of $0.39 per share, $0.03 better than the Reuters Estimates consensus of $0.36. Revenues rose 8.5% year/year to $2.37 bln vs the $2.28 bln consensus.
• American Eagle Outfitters (AEO) Jun same store sales +8.0% vs +4.8% Briefing.com consensus. Co also issued in-line guidance for Q2 (Jul), it sees EPS of $0.35-0.36 vs. $0.36 Reuters Estimates consensus (prior guidance $0.34-0.36).
• Alcoa (AA) reported Q2 (Jun) earnings of $0.81 per share, includes $0.04 per share of curtailment costs at the Tennessee and Rockdale, TX smelters, and may not be comparable to the Reuters Estimates consensus of $0.82. Revenues rose 3.5% year/year to $8.07 bln vs the $8.41 bln consensus.

ECONOMY:

• June retail sales declined 0.9% and were down 0.4% excluding autos, both worse than consensus expectations. Retail sales are up 3.8% versus last year, 4.2% excluding autos.
• The largest dollar drop in June sales was in autos, which fell $2.3 billion. Other declines included building materials (down $690 million), furniture-electronics-appliances (down $435 million), and gas stations (down $417 million). Stronger components of sales included internet-mail order (up $299 million), health and personal care stores (up $229 million), and general merchandise stores (up $131 million).
• Excluding autos, building materials, and gas, sales were unchanged in June and are up 5.2% versus a year ago.
• The trade deficit in goods and services increased to $60.0 billion in May, exactly as the consensus expected, from a revised $58.7 billion in April.
• Exports increased $2.9 billion in May and are up 11.1% versus last year. Capital goods exports rose $1.9 billion (including $0.8 billion in civilian aircraft).
• Imports increased $4.2 billion in May and are up 4.1% versus a year ago. Petroleum imports increased $1.8 billion (due to both higher prices and higher volume) while telecom equipment and pharmaceutical imports each rose $0.4 billion.

What We’re Looking For This Week

Key earnings releases:

• MONDAY: JB Hunt Transportation (JBHT), W.W. Grainger (GWW),
• TUESDAY: Johnson & Johnson (JNJ), Merrill Lynch (MER), The Coca-Cola Company (KO), Wells Fargo & Company (WFC), Yahoo, Inc. (YHOO)
• WEDNESDAY: Abbott Laboratories (ABT), Alliance Data (ADS), Altria Group, Inc. (MO), eBay (EBAY), Host Hotels & Resorts Inc. (HST), J.P. Morgan Chase & Co (JPM), Juniper Networks (JNPR), LaSalle Hotel Properties (LHO), Washington Mutual (WM)
• THURSDAY: Advanced Micro Devices (AMD), Capital One Financial Corp. (COF), Dow Jones & Company Inc. (DJ), Gilead Sciences (GILD), Google (GOOG), Harley-Davidson (HOG), Illinois Tool Works Inc. (ITW), Microsoft (MSFT), Motorola Inc. (MOT), Nucor (NUE), Reliance Steel (RS), The Nasdaq Stock Market, Inc. (NDAQ), Wyeth (WYE)
• FRIDAY: Caterpillar Inc. (CAT), Citigroup Inc. (C), Schlumberger (SLB)

On the economic front we have potential market movers with:

• MONDAY: NY Empire State Index
• TUESDAY: Core PPI, PPI, Net Foreign Purchases, Capacity Utilization, Industrial Production
• WEDNESDAY: Core CPI, CPI
• THURSDAY: Initial Claims, Leading Indicators, Philadelphia Fed
• FRIDAY: FOMC Minutes

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:

“In the last analysis, our only freedom is the freedom to discipline ourselves.” — Bernard Baruch

CANSLIM SETUPS