Litmus Test

Welcome to this week’s edition of The Growth Stock Report!

Traders,

Key leadership sectors staged pullbacks for the week, and as we maintain a tight watch over our open positions we see little to get excited about.

We will be watching volume closely for any signs of institutions exiting at these levels.

Our current position:

VERY CAUTIOUS, USE SMALL PROFIT TARGETS!

In this week’s edition you will find:

Where We Are:

Taking a look at the overall markets:

The Dow 30 and S&P 500 hit 3 and half year highs, while the tech driven Nasdaq remains in a 9 week trading rage.

Charts courtesy of Stockcharts.com.

We are anticipating deeper pullbacks in the market, and are considering the selling pressure to be a litmus test. There’s nothing better that a sell off to separate the strong from the weak.

Dow Jones Commodity Index ($DJAIG) hit an all time high.

The Semiconductor Index ($SOX) posted a slight loss for the week as it remains in a 5 week trading range.

The Banking Sector ($BKX) is pressing a lower trend line that, if broken, may trigger selling.

The Internet Sector ($IIX) also faces ana important decision as it flirts with a 2 and a half year trend line.

Energy (IXE) pulled back, with distribution evident in key players (MUR, KCS, AHC, REM, SUN, VLO).

Action from our open positions:

KCS Energy (KCS) zoomed to our 20% profit target of 18.10 before violently turning around. This has turned into a wild one, so we’re going to pull the plug on the second half of our position if it falls below our buy point of 15.09. Another way to play this is to exit half of th half left open and stick it out as long as the stock remains above the initial stop loss market of 2$ or 14.78.

XTO Energy (XTO) pulled back for the week, though will be considered “healthy” as it attempts to reverse on its 20-day moving average. This one already hit our 20% profit target of 43.68 where we exited half of our position.

Metals USA (MUSA) also hit a new high before selling off. We’ve already booked a 20% profit on this one, and are comfortable. We’re looking at the 2 day moving average as critical, and will exit if the stock falters here.

Steel Dynamics (STLD) has dipped below our initial buy point of 39.81. Three days of distribution in the past two weeks is additional incentive for “safe money” to be out of this one. STLD’s cousin STTX was hard for the week.

Staoil (STO) was surprisingly resilient for the week while hitting a new high and weathering sector selling pressure. Our 20% mark is at 18.92.

Technically speaking, this market is trend up, though without participation tech we are suspect. T

Volume is giving us a slight bearish signal as distribution in techs has not been offset by any significant buying from institutions.

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

HEALTH CARE PLANS
OIL GAS DRILLING EXPLO
MULTIMEDIA GRAPHICS SF
TEXTILE MANUFACTURING
RAILROADS
RESORTS CASINOS
SEMICONDUCTOR-BROAD LI
RESIDENTIAL CONSTRUCTI
INTERNET SERVICE PROVI
HOSPITALS

New Highs on the NYSE began to slow in numbers for the week. New Lows on both the NYSE and Nasdaq have taken it up a notch, though have yet to tilt the scales to the sell side.

What We Like:

We like nothing right now.

Stocks with top fundamentals setting up are: ARO, CHRW, HLEX, NCE, RAH, and THX.


What Was Important About Last Week:

The Federal Reserve said in January consumers borrowed $11.5 billion more than in December – almost double economists’ forecasts – for a 6.6% annualized rate, the fastest pace in three months. Total consumer debt outstanding, excluding mortgage debt, was $2.12 trillion. Yikes.

Crude-oil prices hit a record high above $55 a barrel.

The U.S. Energy Information Administration raised its forecast for China’s consumption for the year with estimates of $45-a-barrel through 2006.

The World Wide Fund for Nature said China would soon be the world’s biggest consumer of timber, threatening “devastating impacts” to forests in the rest of the world. China bans logging in many of its forests.

Airbus forecast that China will increase its commercial airline fleet by around 1,790 planes in the next 20 years, a $230 billion purchase representing more than 10% of global demand.

The Beige Book reported continuing economic growth and strengthening labor markets.
Intel said it expected sales of between $9.2 billion and $9.2 billion for the first quarter, raising previous forecasts.

Unemployment claims rose by 17,000, beating expectations by 2,000. The four-week moving average of claims rose from last week’s four-year low.

The U.S. trade deficit rose to $58.3 billion in January, the second-widest on record and wider than economists expected.


What We Are Watching For This Week:

Key earnings releases:

MONDAY: Hansen Natural (HANS)
TUESDAY: Washington Mutual (WM), Albertsons (ABS), Barr Pharmaceutical (BRL).
WEDNESDAY: Bear Sterans (BSC), Ross Stores (ROSS).
THURSDAY: Ford Motor (F), Morgan Stanley (MWD).
FRIDAY: No market movers.

On the economic front we have potential U.S. market movers with:

MONDAY: none.
TUESDAY: NY Empire State, Retail Sales.
WEDNESDAY: Current Account, EIA Petro., Housing Starts, Industrial Production.
THURSDAY: Leading Indicators, Jobless Claims, Phily Fed.
FRIDAY: Consumer Sentiment.

This Week’s Scans:

SOON TO BE UPDATED!

SETUPS

BREAKOUTS

BASES

SHORTS

This Week’s Word On Discipline:

“Right discipline consists, not in external compulsion, but in the habits of mind which lead spontaneously to desirable rather than undesirable activities.” — Bertrand Russell

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