After a slew of economic data was released the major averages erased early gains and closed lower, termed a "negative reversal" by market technicians. Volume on the exchanges remained at above average levels, but Thursday's totals were reported lower than Wednesday's totals, which showed that institutional investors were not aggressively dumping stocks. Decliners led advancers by over a 17-to-13 ratio on the NYSE while the mix was even on the Nasdaq exchange. There were 40 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, down a notch from 41 issues that appeared on the prior session. New 52-week highs were in the triple digits on both exchanges, while new 52-week lows were in the single digits yet again.

The Commerce Department said that housing starts rose +1.5% last month to an annual rate of 598,000, led by construction of multi-family homes. This was the highest reading in nine months which bodes well for the possible "recovery" for housing prices. Elsewhere, the Federal Reserve Bank of Philadelphia said its general economic index rose to 14.1 in September from 4.2 in August. Both reports coupled with an unexpected decline in jobless claims, support Fed Chairman Ben S. Bernanke’s theory that the recession has likely ended. A separate report from the Fed showed that US household wealth rose by $2 trillion in the second quarter which effectively ended the largest slump in history. Net worth for households and non-profit groups rose to $53.1 from $51.1 trillion in the first quarter, reflecting the largest quarterly jump in stock prices since 1998 and the first increase in home prices in more than two years. This was the first gain in household wealth since the third quarter of 2007.

The market is very strong, evidenced by the very steep rally over the past 10 days. Keep in mind that as every day passes, the chances of a pullback increase. Normally, one would like to see the market advance on heavy volume then pull back on lighter volume before resuming its uptrend. The fact that the major averages negatively reversed suggests that a near-term pullback may finally occur.

PICTURED: The Dow Jones Industrial Average negatively reversed on light volume than the prior session.

Charts courtesy www.stockcharts.com

PICTURED: The Bank Index ($BKX -0.95%) erased early gains after reaching a new 2009 high. That is termed a "negative reversal" chart pattern. For the near term it could be a signal that the financial group and broader market may spend more time consolidating after rallying so impressively from this year's lows.

A classic example of the success enjoyed by many CANSLIM.net readers usually starts when an investor reads a CANSLIM.net report and buys a featured stock before it has risen above the pivot point by greater than 5%.  After a stock breaks out above its pivot point, there is only a +5% window that investors have to purchase the stock under the proper guidelines. Once a stock rises above the "maximum buy price" the risk of a shake out balloons, meaning that even a normal retracement in the stock might force you to employ the 7-8% loss cutting rule.  Much can be told by the stock's daily action in the weeks and months that follow a breakout. Typically, a light volume and orderly pullback suggests that the bulls remain in control.  However, high volume pullbacks that violate support paint a totally different picture.

ArcSight, Inc. (ARST -$0.02 or -0.09% to $22.19) is hovering in a tight trading range, and with volume totals drying up it has stubbornly held its ground near all-time highs after a consideable 5-fold rally from its November '08 low. The weekly chart below shows it forming what may be considered a "3-weeks tight" pattern by some if it completes this week in close proximity to the 2 prior weekly closes.  However a "3-weeks tight" pattern is an advanced type of chart pattern that typically follows a substantial run up percentage-wise of +70-100% or more in the prior 9-16 weeks.  ARST has advanced, but it has not run up that considerably in the recent time span.  It also has not encountered any distributional pressure since its latest breakout was shown in this FSU section with an annotated daily graph under the headline "Gap Up Gain Follows Quarterly Report For Computer Software Firm" after it gapped up on 9/04/09 and hit a new all-time high with a considerable gain on heavy volume. Volume was nearly 3 times its average daily volume as it blasted above its pivot point, triggering a technical buy signal. 

Prior chart highs are now an important support level to watch on pullbacks, and any deterioration back into its prior base would raise concerns. Remember, disciplined investors avoid chasing stocks more than +5% above their pivot point, and always limit losses by selling whenever any stock falls 7-8% from their buy price. ARST was first featured in yellow at $19.91 in the 9/01/09 mid-day report with an annotated daily graph (read here) and it was also featured with more detailed analysis in the September 2009 CANSLIM.net News with an annotated weekly graph (read here). 

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.