Looking at the market, the major averages closed with modest gains on Wednesday as the major averages consolidate their recent move. As long as February 5th lows are not breached the window remains open for a new follow-through day (FTD) to emerge. A new follow-through day will confirm the current rally attempt and will be produced when one of the major averages rallies at least +1.7% on higher volume than the prior session as a new batch of leaders breakout of sound bases. However, if the February 5, 2010 lows are breached then the day count will be reset and a steeper correction may unfold.

It is also important to see how the major averages react to their respective 50-day moving average (DMA) lines which were support and are now acting as resistance. Until they all close above that important level the technical damage remaining on the charts is a concern. So far, the market’s reaction has been tepid at best to the latest round of economic and earnings data which remains a concern. Remember that the market remains in a correction until a new new follow-through day emerges. Until then, patience is paramount.

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PICTURED: The Dow Jones Industrial Average remains trading below its 50-day moving average.  Technically, gains above that important short-term average for any of the major averages would help the market outlook.

The Healthcare Index ($HMO +1.96%) was one of Wednesday's best gainers, making up ground after lagging on the prior session. The Biotechnology Index ($BTK +1.64%) also posted a solid gain while there were smaller gains from the Networking Index ($NWX +0.50%), Semiconductor Index ($SOX +0.17%), and Internet Index ($IIX +0.19%).  The Retail Index ($RLX +0.81%) also had a positive influence on the major averages, however the Bank Index ($BKX -0.02%) and Broker/Dealer Index ($XBD +0.03%) finished virtually unchanged.  As the Gold & Silver Index ($XAU -0.62%) and Integrated Oil Index ($XOI -0.49%) slumped slightly, the Oil Services Index ($OSX +0.30%) finished narrowly higher.

Charts courtesy www.stockcharts.com

PICTURED: The Biotechnology Index ($BTK +1.64%) has rallied to a new recovery high with its current winning streak of 4 consecutive gains.

ArcSight, Inc. (ARST +$0.61 or +2.30% to $27.14) posted a 6th consecutive gain today with below average volume, rallying further above its 50-day moving average (DMA) line. In addition to the technical improvement above that short-term average that recently helped its outlook, its Earnings Per Share (EPS) rank has ratcheted back up above the 80 minimum guideline mentioned in the stock's last appearance in this FSU section with an annotated graph on 2/04/10 under the headline Gap Down and Waning EPS Rank Raise Concerns. Building a new potentially sound base now, its consolidation resembles a "double bottom" type pattern marked by an ideal "lower low" where its January 14th high of $27.95 could be used as the pivot point, however, it is a bit short of the minimum length (8 weeks) for a proper double bottom base.  Otherwise, its all-time high ($29.24) could be the basis for a new pivot point. Either way, convincing gains above its recent peaks would be a very encouraging sign of hearty demand for the high-ranked Computer Software - Security firm's shares.

Market conditions (M criteria) leave disciplined investors still waiting patiently for a solid follow-through-day before any new buying efforts are justifiable under the investment system guidelines. Important support to watch now is its recent low ($22.58) and its 200 DMA line. ARST has continued putting up solid sales revenues and earnings results since first featured in yellow at $19.91 in the 9/01/09 mid-day report with an annotated daily graph (read here).  On January 4, 2010 it had gapped up and triggered a technical buy signal as it blasted above its November 2009 high ($27.10), however, it failed to follow through with additional gains. Losses with above average volume later negated its last breakout and led to a close back in its prior base, raising concerns.

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.