The major averages got clobbered, suffered another distribution day, and negatively reversed on higher volume than the prior session as the first trading day in September kicked off. Decliners trumped advancers by about a 5-to-1 ratio on the NYSE and by a 4-to-1 ratio on the Nasdaq exchange. There were only 5 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 8 issues that appeared on the prior session. New 52-week highs still outnumbered new 52-week lows on both exchanges while new lows were in the single digits again.

Before Tuesday's opening bell, equity futures were in the red in reaction to negative economic data released in England overnight. The negative data sent European markets and US futures lower before the first opening bell rang in September. However, the US market spent the first hour advancing after two stronger than expected economic reports were released. The Institute for Supply Management’s manufacturing index rose to 52.9 which topped forecasts and the boom/bust reading of 50. The reading was the highest level since June 2007 and signaled expansion. A separate report showed that more Americans than anticipated signed contracts to buy existing homes in July, also known as pending home sales. Unfortunately, the bears showed up and sent a slew of leading stocks and the major averages sharply lower. This ominous action puts the current rally under serious pressure and reiterates the importance of remaining in cash until a new batch of healthy leadership emerges.

The S&P 500 Index soared over +50% from its 11-year low set in March 2009. This left the benchmark index valued at about 19 times the profits of its companies as of the end of last week, which is the highest, or, as value investors would say, "most expensive" level since June 2004. The +50% rally in Europe’s Dow Jones Stoxx 600 Index over the same period drove the average price-earnings ratio for its companies to the highest level since 2003. Looking forward, September has been historically noted as the "worst month" for US stocks, which leads many to believe that a market top of some sort will occur. However, the market has amazing knack for proving the crowd wrong. Data collected from Bloomberg.com says historically, the benchmark index has shed -1.3% during September since 1928. Instead of trying to predict, sit back and watch your stocks. If the market starts to roll over, leading stocks will very likely begin to trigger technical sell signals. That is because 3 out of 4 stocks typical follow the broader market averages' direction.  Studying price and volume is the best way to interpret market action, not listening to opinions. 

Charts courtesy www.stockcharts.com

PICTURED 1: The Bank Index ($BKX -5.78%) fell hard, diving toward prior chart highs.

Charts courtesy www.stockcharts.com

PICTURED 2: The Broker/Dealer Index ($XBD -5.36%) also fell sharply, diving toward prior chart highs.

NVE Corp's (NVEC -$2.41 or -4.53% to $50.79) loss today on higher volume was its 5th consecutive decline. It is again trading near important support at its 50-day moving average (DMA) line and prior chart highs. Its color code was changed to green this week based on its weak action and failure to produce gains above its latest pivot point. In fact, today's intra-day low briefly undercut its 8/18/09 low which coincides with its last appearance in this FSU section under the headline, "Consolidation Near Important Support Levels" (read here). Throughout its ongoing advance, NVEC has found support near its 50 DMA line. Caution is warranted now, as eventually a more substantial correction is bound to come, and broader market conditions (the M criteria) appear to be weakening.

NVEC traded up as much as +69.87% since it was first featured in yellow at $33.85 in the Friday, March 13, 2009 Mid-Day Breakouts Report (read here). This high-ranked Electronics - Components leader has a good quarterly and annual earnings growth history (C & A criteria). However, it has failed to make additional progress since it was featured in the 7/23/09 Mid-Day BreakOuts Report (read here) after it gapped up for a considerable gain on heavy volume following news of stronger sales revenues (+41%) and solid earnings increases for the quarter ended June 30, 2009. The technical action was described as a "breakaway gap" from a valid ascending base. It has a very small supply of only 4.68 million shares outstanding. This is another good reason to be especially disciplined about proper entries and exits.  A small supply is generally considered a good sign with respect to the S criteria, yet could contribute to great volatility in the event of institutional accumulation or distribution.

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.