The following sections are on our home site:

• The Growth Stock Landscape
• What We Like – What We Have
• This Week’s Scans

Where We Are:

Taking a look at the broader market:

The Dow ticked in a new six-year high as Banks broke out.

Weekly chatter danced around the Fed and the fact that May tips off an historically bad season for the markets.

The talking suits argue endlessly, “Will they raise rates more than one more time over the next six months?”

Who knows. So far bonds are telling us some serious restructuring is in the midst. Bonds tend to lead equities. Equities tend to lead the economy. The economy tends to lead the fed.

On the month of May: The six month period beginning this month has for the past 50 years produced practically no gains.

One could argue quite well that obeying the market’s historical tendencies is just as practical as the price and volume indicators we follow.

Our price and volume indicators have had us waiving the caution flag for well over a month.

The Hi/Lo ratio continues to show bearish divergence against the broader market.

If this market were truly strong, why isn’t that being reflected with healthy numbers of new highs?

And we are not comfortable in an environment led by Energy stocks.

Energy stocks tend to lead the crude oil prices.

“During the seventeen years between 1986 and 2002, the price of West Texas Intermediate crude oil averaged $20.53/bbl. In 2003, the average price for oil reached $31.14/bbl., in 2004 it was $41.44/bbl., in 2005 it was $56.47/bbl., and during the first three months of 2006 the price has averaged $63.35/bbl. On Friday, the price rose above $75/bbl., an all-time high in nominal terms,” say Brian S. Wesbury and Bill Mulvihill

And we really don’t like to see the Computer Technology Index ($XCI) collapse below its major moving averages as it did last week.

Yes, economic data remains strong, but that’s exactly when markets top out.

So far earnings season isn’t providing much stimulus either. Microsoft (MSFT) may be just one stock, but it speaks for a dismal environment. Tech giants such as Intel (INTC) and Dell (DELL) have been giving us the same message as Mr. Softie.

To feel better about the market’s upward momentum, we’d like to see all of the above change.

And we don’t see how that will happen any time over the next six months.

We’re not so foolish as to pick a top. But all we can say is this environment is not favorable to our Growth Stock strategies.

When the market’s ready we’ll be there. Until then, the focus goes on preserving capital.

Technically speaking (for the week):

The Dow Industrial Average
($INDU), +0.17%, hit a fresh six-year high for the week.

The S&P 500
($SPX), -0.05%, consolidated just below a recent high for the week.

Nasdaq
($COMPQ), -0.87%, gradually declined to just above its 50-day moving average.

Russell 2000
($RUT), -0.98%, gradually declined to its 20-day moving average.

Volume indications gave us a couple of distribution day a pice on the major indexes, though total volume for the past two weeks goes to the bulls.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 10-year Note Yield
($tnx) moved to a new four year high.

The U.S. Dollar Index
($USD) collapsed below its major moving averages for the second week in a row.

The Gold Miners Index
($XAU) extended last week’s gain, though did not hit a new high.

The Dow Jones AIG Commodity Index
($DJAIG) pulled back, though remains above its 20-day moving average.

Consumer Staples
($CMR) regained ground above its 50-day moving average though has lagged behind its counterpart, Cyclicals, for the past coup0le of months.

Consumer Cyclicals
($CYC) pulled back gently, as it trades above all its major moving averages.

Technology
($DJUSTC) retreated to its 50-day moving average, as it continues to trend sideways for the year.

The Semiconductor Index
($SOX) consolidated around its 50-day moving average as it continues to lag the overall market.

Banks
($BKX) broke out to a new high.

Broker Dealers
($XBD) sold off to close below its 20-day moving average.

Retail
($RLX) consolidated just above its 50-day average.

Healthcare
($HCX) continued trade bleow its major moving averages.

Biotech
($BTK) consolidated below its 50-day average and above its 200-day average.

REIT’s
($DJR) also >) consolidated below its 50-day average and above its 200-day average.

Homebuilders
($DJUSHB) fell further below its major averages for a new low on the year.

Transportation
($TRAN) puled back gently to its 20-day average.

Airlines
($XAL) are attempting to rebound on a key trend line as the index remains in a multi year triangle pattern.

Defense
($DFX) pulled back gently to its 20-day average.

Energy
($IXE) pulled back to its 20-day average.

Utilities
($UTY) rallied to the resistance mark of its 50-day average.

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

1. GOLD
2. SEMICONDUCTOR-INTGRTD
3. INTERNET SERVICE PROVI
4. INDUSTRIAL METALS MINE
5. STEEL IRON
6. BASIC MATERIALS WHOLES
7. INDUSTRIAL ELECTRICAL
8. PRINTED CIRCUIT BOARDS
9. SEMICONDUCTR-MEMORY CH
10. FARM CONSTRUCTION MACH

What Was Important About Last Week

STOCKS:

• Microsoft (MSFT) reported Q3 (Mar) earnings of $0.32 per share, excluding $0.03 legal charge – missing analysts’ expectations by a penny. Revenues rose 13.3% year/year to $10.9 bln, also shy of expectations (consensus $11.04 bln). Looking ahead, MSFT issued downside EPS guidance for Q4, sees EPS of $0.30 (consensus $0.34) on revenues of $11.5-11.7 bln (consensus $11.67 bln). The company also issued downside EPS guidance for FY07, sees EPS of $1.36-1.41 (consensus $1.53) on revenues of $49.5-50.5 bln (consensus $49.52 bln).
• McAfee (MFE) reported Q1 (Mar) earnings of $0.37 per share, $0.07 better than the Reuters Estimates consensus of $0.30. Revenues rose 15.4% year/year to $272 mln vs. the $261.9 mln consensus.
• Flextronics (FLEX) reported Q4 (Mar) earnings of $0.16 per share, excluding non-recurring items, in line with the Reuters Estimates consensus of $0.16. Revenues fell 0.4% year/year to $3.6 bln (consensus $3.61 bln).
• Pulte Homes (PHM) reported Q1 earnings climbed 21%, but slippage in new home orders has caused some concern.
• Express Scripts (ESRX) reported Q1 (Mar) earnings of $0.70 per share, in line with the Reuters Estimates consensus.
• Business Objects (BOBJ) reported Q1 (Mar) earnings of $0.33 per share, excluding non-recurring items, three cents better than the Reuters Estimates consensus.
• Cendant (CD) reported Q1 (Mar) earnings of $0.16 per share, two cents better than the Reuters Estimates consensus.
• Amazon.com (AMZN) reported Q1 (Mar) earnings of $0.12 per share, excluding non-recurring items, in line with the Reuters Estimates consensus. Revenues rose 19.8% year/year to $2.28 bln (consensus $2.23 bln).
• AFLAC Inc. (AFL) , excluding non-recurring items, reported Q1 (Mar) earnings of $0.72 per share, two cents better than the Reuters Estimates consensus of $0.70; revenues were unchanged from the year-ago period at $3.56 bln.
• Boyd Gaming (BYD) reported Q1 (Mar) earnings of $0.78 per share, surpassing analysts’ expectations by five cents. Total revenues rose 16.1% year/year to $646.5 mln vs the $655 mln consensus.
• Netflix (NFLX) posted better than expected Q1 results, aided by 47% revenue growth.
• Sun Microsystems (SUNW) reported a Q3 (Mar) loss of $0.06 per share, $0.01 better than the Reuters Estimates consensus of ($0.07) and in line with First Call consensus of ($0.06). Revenues rose 20.9% year/year to $3.18 bln (consensus $3.2 bln).
• YUM! Brands (YUM) reported Q1 (Mar) earnings of $0.59 per share, two cents better than the Reuters Estimates consensus. Total revenues rose 1.5% year/year to $2.08 bln, which was shy of the $2.11 bln consensus.
• Ford (F) reported dismal Q1 results, hurt by ongoing weakness in North America.

ECONOMY:

• Real GDP increased 4.8% at an annual rate in Q1, a rebound from the 1.7% annual growth in Q4. Growth in Q1 was the fastest since Q3 2003. The GDP chain-weighted price index increased an annualized 3.3% in Q1. Nominal GDP (or aggregate demand) rose an annualized 8.2% in Q1.
• The Chicago Purchasing Managers’ Index (PMI) pulled back to 57.2 in April versus 60.4 in March. The index has been above 50 for 36 consecutive months.
• Federal Reserve Chairman Ben Bernanke testified before the Joint Economic Committee today on his outlook for the U.S. economy and monetary policy. On the economy, Chairman Bernanke was fairly upbeat, saying that “the prospects for maintaining economic growth at a solid pace in the period ahead appear good.” However, Mr. Bernanke warned that the housing market was showing signs of “softening” and could be a drag over the next two years.
• New orders for durable goods increased by a more-than-expected 6.1% in March. Durable goods orders are up 17.7% in the past year – the fastest YOY gain since June 2000.
• New single-family home sales surged 13.8% in March to 1.213 million units at an annual rate – the largest one-month percentage gain since 1993. This follows a 10.9% decline in February (originally -10.5%). New home sales are down 7.2% in the past year.
• Housing Data:
• The median price of a new home fell a non-seasonally adjusted 6.5% in March and is down 2.2% in the past year.
• At the current sales pace, the supply of new homes fell to 5.5 months in March versus 6.3 months in February. From 1970-2000 the inventory of new homes on the market averaged 6.4 months.
• Existing home sales rose 0.3% in March to 6.92 million units at an annual rate. This was higher than consensus forecasts of 6.65 million. Nonetheless, existing home sales are down 0.7% in the past 12 months.
• The median sales price of an existing home was $218,000 in March, unchanged from February’s level and 7.4% higher than a year ago. As the chart nearby shows, this YOY change is in sharp contrast to the CPI, which shows housing costs (23.2% of overall CPI) rising just 2.8% in the past year. We believe the CPI significantly understates actual inflation because it underestimates housing costs.

What We’re Looking For This Week

Key earnings releases:

• MONDAY: Chesapeake Energy Corporation (CHK), Fisher Scientific International (FSH), Southwestern Energy (SWN), m Technologies Inc. (ZOOM).
• TUESDAY: Accredited Home Lenders Holding Co. (LEND), Alcan Inc. (AL), Allied Waste Industries, Inc. (AW), Caremark Rx, Inc. (CMX), Eagle Materials Inc. (EXP), Entergy (ETR), Macrovision (MVSN), Oshkosh Truck (OSK), Verizon (VZ), WMS Industries Inc. (WMS).
• WEDNESDAY: Barrick Gold (ABX), Career Education (CECO), CIGNA (CI), Clorox (CLX), Cognizant Technology Solutions (CTSH), Dean Foods (DF), Garmin Ltd. (GRMN), Glamis Gold Ltd (GLG), Patterson-UTI Energy, Inc. (PTEN), Starbucks (SBUX), TEEKAY SHIPPING MARSHALL ISLND (TK), Time Warner Inc. (TWX), Whole Foods Market (WFMI).
• THURSDAY: Activision (ATVI), Anglogold Ashanti Limited (AU), Kerr-McGee (KMG), Quest Software Inc. (QSFT), Swift Energy (SFY), UBS (UBS), Wild Oats Markets (OATS).
• FRIDAY: Alliant Techsystems Inc. (ATK), Cimarex Energy Co. (XEC), Harmony Gold Mining (HMY), LoJack (LOJN), THQ Inc (THQI).

On the economic front we have potential market movers with:

• MONDAY: Personal Income, Personal Spending, Construction Spending, ISM Index
• TUESDAY: Auto Sales, Truck Sales,
• WEDNESDAY: Factory Orders, ISM Services, Crude Inventories
• THURSDAY: Initial Claims, Productivity-Prel
  
• FRIDAY: Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Consumer Credit

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:

“Nothing is more harmful to the service, than the neglect of discipline; for that discipline, more than numbers, gives one army superiority over another.”
— George Washington