Overnight, China said inflation rose +2.7% in February, up from +1.5% in January. For the past few months, China has taken several steps to curb inflation and its robust economy. Their actions sent stocks lower as many people were concerned about what the ramifications would be for the ongoing economic recovery. Therefore, the higher reading on inflation could cause China to raise interest rates which could, in turn, hinder the economic recovery. 

In the US, two important economic reports were released: weekly jobless claims and the latest trade data. The Labor Department said weekly jobless claims fell by 6,000 to 462,000 which was a positive sign. Elsewhere, the Commerce Department said the trade deficit contracted in January due to a large drop in imported oil and cars. The report showed that US exports slid -0.3% which was concerning because the drop in overseas sales could slow the recovery.

Looking at the market, since the March 1, follow-through-day (FTD) the market and a batch of leading stocks steadily rallied. The fact that we have not seen any serious distribution days since the FTD bodes well for this nascent rally. It is also a welcome sign to see the market continue to improve as investors digest the latest round of stronger than expected economic and earnings data. Remember that now that a new rally has been confirmed, the window is open to start buying high quality breakouts. Trade accordingly.

PICTURED: The benchmark S&P 500 Index closed at the session high just $0.21 below its recovery high.

The Healthcare Index ($HMO +1.56%) and Gold & Silver Index ($XAU +0.85%) were among Thursday's best performing group indexes.  The Networking Index ($NWX +1.09%) posted its 10th consecutive gain while leading the tech sector higher. Meanwhile the rest of the tech sector showed less decisive action as the Semiconductor Index ($SOX -0.25%) lagged and the Biotechnology Index ($BTK +0.04%) and Internet Index ($IIX +0.24%) inched higher.  A modest gain from the Retail Index ($RLX +0.79%) provided a positive influence for the major averages.  Energy-related shares were mixed as the Oil Services Index ($OSX -0.11%) and Integrated Oil Index ($XOI +0.28%) ended the session with little change. The Broker/Dealer Index ($XBD +0.19%) is still a point below its January 2010 highs and -5.74% off its October 2009 recovery peak. However, the Bank Index ($BKX +1.72%) has been charging to new recovery highs, as shown below.

Charts courtesy www.stockcharts.com

PICTURED: The Bank Index ($BKX +1.72%) posted a 6th consecutive gain while rallying to new recovery highs. The leadership from financial stocks (along with many other growth areas) bodes especially well for the overall market outlook.

Aruba Networks Inc. (ARUN +$0.02 or +0.15% to $13.29) has been consolidating near its 52-week high after a considerable gain on 3/09/10 with volume nearly 4 times average. It is extended from its prior base, and disciplined investors would avoid chasing it and wait for another ideal entry point within the investment system's guidelines. Meanwhile, support to watch is now defined by prior chart highs and its 50-day moving average (DMA) line. When it gapped up 2/19/10 it was first featured in yellow in the mid-day report (read here) as its considerable gain for a new 52 week high on more than 8 times average volume helped it break out from a flat base-on-base pattern above its 50 DMA line. As previously noted, "a gap up gain with 8 times average volume is an indication of heavy institutional (I criteria) buying demand." It held its ground above prior chart highs and then followed through with additional confirming gains on heavy volume since its last appearance in this FSU section on 2/22/10 with an annotated daily graph under the headline "Held Ground After Prior Gap Up With 8 Times Average Volume." We will follow up that annotated daily graph with a weekly graph below that reveals several important data points.

Some of the strong technical action recently was an immediate response to its improving fundamentals. Its Up/Down Volume Ratio of 2.0 and gains backed by above average volume in 3 of the past 4 weeks are bullish signs. Its current quarterly earnings (C criteria) increases have been above the +25% minimum guideline and earnings in recent years followed prior annual losses. The quarter ended Dec 31, 2009 also showed a more impressive +30% sales revenues increase continuing its acceleration. The number of top-rated funds owning an interest in its shares rose from 45 in Mar '09 to 77 in Dec '09 providing a nice reassurance with respect to the investment system's I criteria. Return On Equity reported at 6% is below the 17% guideline, leaving some concerns. However, management's 26% ownership interest keeps the directors' focus on maintaining and growing shareholder value.

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.