The major averages closed lower on Friday and for the week as investors digested a slew of economic and earnings data. Volume was reported higher than the prior session on the NYSE and on the Nasdaq exchange which marked a distribution day and suggested that large institutions were aggressively selling stocks. Decliners led advancers by over a 2-to-1 ratio on the NYSE and by nearly a 3-to-1 ratio on the Nasdaq exchange. There were only 15 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, lower than the total of 28 issues that appeared on the prior session. New 52-week highs still solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

On Monday, stocks ended mixed after China reported record imports and the US dollar declined. After Monday's closing bell, Alcoa Inc. (AA -1.14%) officially kicked off earnings season as the company reported lackluster fourth-quarter earnings which set a negative tone for the rest of the week. On Tuesday, the major averages collectively fell for the first time this year after a disappointing start to earnings season and China raised reserve limits for its banks. The move was designed to curb their explosive economic growth. Since the March bottom China has played a pivotal role in leading the global economy out of the worst recession since WWII. China has emerged as a strong economic engine for growth. The threat of an economic slowdown in China spooks many investors.

On Wednesday, stocks closed higher after Google (GOOG -1.67%) threatened to leave China, the world's largest internet market, on censorship concerns. Several of Wall Street's top bankers spent the morning testifying on Capital Hill about the 2007-2009 financial crisis. The bankers, whose companies collectively received more than $100 billion in government aid, spent hours explaining what happened during the crisis. The Financial Crisis Inquiry Commission was formed to examine and learn from what went wrong during that period. At 2:00PM EST, the Federal Reserve released its Beige Book which showed the economy continues to recover in many regions in the country.

On Thursday, it was encouraging to see stocks edge higher on weaker than expected economic data. Most of Thursday's headlines occurred before the open, The European Central Bank held rates steady and said they will wait for further economic recovery before withdrawing emergency stimulus measures. Domestically, two important economic reports were released at 8:30 AM EST: weekly jobless claims and last month's retail sales. Both reports missed views. 

Charts courtesy www.stockcharts.com

PICTURED 1: The Semiconductor Index ($SOX -3.44%) fell toward its prior chart highs and 50-day moving average line.  If the index's action is indicative of the average stock in the group, the above clearly is suggesting that there could be further losses expected before any chart support is reached.

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PICTURED 2: The Retail Index ($RLX -0.28%) edged lower.  Its upward trendline and 50-day moving average line define a support level presently being tested.  Let the action in each individual issue be the determing factor, yet always be mindful of the group action.  Group action has overwhelming influence! 

China Automotive Systems (CAAS -$2.21 or -9.51% to $21.03) gapped down today after an analyst downgrade, suffering its 4th consecutive loss on above average volume. It is heavy distributional pressure after a 5-fold run up since July 2009. Perhaps its ugly action is a hint it could be a wise time to be locking in profits rather than accumulating. CAAS was actually rather late-stage at $18.84 when first featured in the 11/30/09 mid-day report (read here). It is now extended from an ideal buy point and considered "damaged goods" although some might be watching for it to find support near previous resistance.  It is usually best to avoid the temptation to buy apparent "bargains", and instead buy on signs of strength.

The daily chart below shows recent quarters with sales revenues accelerating greatly and earnings increases getting bigger, and it has a good annual earnings history (A criteria). Increasing ownership from a handful top-rated funds is encouraging news concerning the I criteria of the investment system, as the number of top-rated funds rose from 4 in Dec '09 to 9 in Sept '09.  Meanwhile, the small supply of shares (S criteria) in its publicly traded float could contribute to great volatility in the event of more abrupt maneuvering by large and highly influential fund managers.

Color Codes Explained :
Y - Better candidates highlighted by our staff of experts.
G - Previously featured in past reports as yellow but may no longer be buyable under the guidelines.