Wait And Watch Mode

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


Are cautious outlook has turned to concern for the market. Price and volume on the major indexes have turned us off from taking on any new positions, so we’re in wait and watch mode.

Our current position:

WARNING! This market is vulnerable to further selling.

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 declined for the week, and are now just below their 50-day moving averages.

The Nasdaq has broken its 9-week trading range to the downside.

Technically speaking, the major indexes have broken their up trends. We have critical support areas for the Dow 30 around 10449, for the S&P 500 around 1160, and for the Nasdaq around 1974. Before taking a short bias we need to see weekly closes with conviction below these zones, though anticipate a fight. We’re going to be watchers, not players in here.

The look we’re getting from the market is mostly negative, though we still have pockets of strength that will be monitored closely.

As mentioned in last week’s report, sell offs are great litmus tests, and so far we have Internet stocks and broker dealers holding up. These sectors tend to be leaders in the market, so strength here will be perceived as strength for the market.

The negatives we have are in techs and banking as they broke key support levels. We believe the hard truth is the market won’t rally without support from these areas.

Key chart action:

Charts courtesy of Stockcharts.com.

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

The Semiconductor Index ($SOX) declined for the third week in a row.

The Banking Sector ($BKX) broke a 9-month trend-line to the downside.

The Broker Dealer Index (XBD) is holding ground after upbeat earnings from key players in the group.

The Internet Sector ($IIX) continues to flirt with a key trend-line.

Energy (IXE) put in a modest rally for the week.

Homebuilders ($DJUSHB) have declined for the second week in a row. We’ve mentioned this sector looks like it may be putting in a climax top.

Volume indications gave us a clear bearish signal for the week as all major indexes gave us back to back distribution days.

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


New Highs for the NYSE and Nasdaq declined in numbers for the week as the number of new lows hit increased, giving us a bearish bias.

What We Like:

We continue to see nothing worth buying at this time.

Energy remains attractive.

Stocks with top fundamentals setting up are: ARO, CNI, EXP, GPN, HLEX, OSG, PETD, RAH, THX, TNP.

Action from our open positions:

KCS – KCS Energy retreated to below its 50-day moving average, though turned around without hitting our break-even stop-loss mark. We’re still holding half a position after taking half off at the 20% profit target.

STO – Statoil continues to hold ground just shy of an all time high. 19.97 is our 20% profit target – So close now it won’t hurt to ring the cash register if energy stocks come under pressure.

XTO – XTO energy edged higher for the week, as its 20-day moving average holds as support. We still like it, and have already bagged a 20% profit on it.

MUSA – Metals U.S.A. continued to pullback for the week, and is still above our buy point of 19.10, though still short of our 20% mark of 22.92.

STLD – Steel Dynamics took it on the chin for the week – we’re out with a 2% loss.

PMTI – Palomar Medical technologies inched higher as its 20-day moving average marks support. 32.80 is our 20% profit target.

What Was Important About Last Week:

  • The Treasury Department said foreigners bought $91.5 billion more in U.S. securities than domestic investors did in January. This is a far bigger number than economists were expecting, and eased fears of a retreat in support of America’s $58.3 billion trade deficit.
  • U.S. retail sales rose 0.5% for February, slightly less than expectations.
  • General Motors (GM), the No. 1 U.S. auto maker, said it expected to lose $1.50 a share in the first quarter, down from previous expectations that it would break even. For the year, the company expects to earn between $1 and $2 a share, down from its earlier $4-to-$5 range.
  • Earnings reports from broker dealers were stellar – as usual. Lehman Brothers (LEH), Bear Stearns (BSC), Goldman Sachs (GS, and Morgan Stanley (MWD).
  • The price of crude oil hit a new high of $57 a barrel.
  • Housing starts rose 0.05% for an annual pace of 2.195 billion. This is the fastest pace since February 1984, and beat economists’ forecasts.
  • The U.S. current account deficit rose to a record $187.9 billion, or 6.3% of gross domestic product, in the fourth quarter of 2004.
  • Jobless claims fell to 318,000, matching estimates.
  • Leading indicators rose 0.1% for last month, though the index has fallen 6 out of the last 9 months.
  • The Philadelphia Federal Reserve said its index of factory activity fell to the lowest level in 20 months.

What We Are Watching For This Week:

Key earnings releases:

  • MONDAY: none
  • TUESDAY: Biomet Inc. (BMET), KB Home (KBH), Synopsus (SNPS), Wal-Mart (WMT).
  • WEDNESDAY: Applied Materials (AMAT).
  • THURSDAY: Northrop Grumman (NOC).
  • FRIDAY: none

On the economic front we have potential market movers with:

  • MONDAY: none
  • TUESDAY: FOMC Meeting and Announcement, Producer Price Index, Investor Confidence.
  • WEDNESDAY: Consumer Price Index, Existing Home Sales.
  • THURSDAY: Durable Goods, Jobless Claims, Money Supply, New Home Sales.
  • FRIDAY: none

This Week’s Scans:






This Week’s Word On Discipline:

“He that cannot obey cannot command..” — Ben Franklin

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