For Friday's session and for the week the major averages opened higher and rallied to new 2009 highs before reversing and closing lower as the latest earnings news flooded in.  The classic "negative reversal" was marked by higher volume totals compared to the prior week, which suggested that large institutions were net sellers. Decliners undeniably trumped advancers by over a 3-to-1 ratio on both major exchanges. Friday's volume totals were mixed, reported lower on the NYSE, yet higher on the Nasdaq exchange compared to the prior session. The lower volume helped the NYSE indices avoid another distribution day. The Nasdaq Composite Index's -0.50% loss may be considered a "distribution day", but ironically, the higher volume total could largely be attributed to very heavy trading in a couple of standout gainers showing very bullish action, most notably Microsoft Corp (MSFT +5.38%).  There were 23 high-ranked companies from the CANSLIM.net Leaders List, making a new 52-week high and appearing on the CANSLIM.net BreakOuts Page, higher than the 9 issues that appeared on the prior session. New 52-week highs still substantially outnumbered new 52-week lows on both major exchanges.

On Monday, stocks enjoyed healthy gains ahead of Apple Inc's (AAPL -0.61%) earnings announcement. Monday marked the 22-year anniversary of the October 1987 crash. Approximately 130 companies in the S&P 500 reported earnings this week and most of them topped Wall Street estimates. However, the fact that the market closed lower on the news suggests large institutions were not happy with the tepid data. The average analyst believes that profits will rebound +65% in the last three months of the year after falling for nine straight quarters which is the longest streak since the Great Depression. It was encouraging to see stocks rally after confidence among US homebuilders unexpectedly fell in October, and concerns are spreading that home sales will fall after government credits expire. The National Association of Home Builders/Wells Fargo confidence index fell -18% a reading of 19 in September which was the highest in more than a year, the Washington-based association said. Any reading below 50 suggests respondents view conditions as poor.

On Tuesday, the major averages suffered a distribution day as the US dollar advanced. The Commerce Department released a report which showed housing starts rose +0.5% in September to an annual rate of 590,000 and lowered August's reading. This fell short of the Street's estimate for a rate of 610,000. Permits, a sign of future construction, fell for the second time in the past three months which signaled the housing recovery is still questionable. The Labor Department released its Producer Price Index (PPI) which fell -0.6%. Bloomberg.com defines the PPI as "index that measures the average price level for a fixed basket of capital and consumer goods received by producers." This was the second decline in three months and followed a +1.7% rise in August. Core PPI which excludes food and energy slid -0.1%.

On Wednesday,the Dow Jones Industrial Average, Nasdaq Composite, and S&P 500 indexes all suffered an "outside reversal" day which means that session's range eclipsed the prior session's range. Chart readers view outside reversal days as very significant since historically they have often marked a meaningful change in trend. The major averages turned lower in the final hour of trading after analyst Dick Bove downgraded Wells Fargo & Co. (WFC -2.82%). Timothy Geithner the current US Treasury Secretary said the bank capital-purchase program in last year's $700 billion bailout will be allowed to expire later this year because parts of the economy and the markets are stabilizing. Geithner told Reuters that “We are now at the point where we can begin to wind down the programs that really defined TARP in its initial stages,” referring to the Troubled Asset Relief Program. Elsewhere, the Federal Reserve released its Beige Book which surveyed its 12 districts. The report showed that the 12 regions believe that many sectors of the economy have stabilized or are modestly improving. The report also showed that all regions showed a waning real estate market. 

The Retail Index ($RLX +1.38%) was a standout gainer while Friday afternoon's weak action erased early gains and resulted in widespread losses across most industry groups. The Internet Index ($IIX -0.03%) ended flat, holding its ground with considerable help from Amazon.com Inc's (AMZN +26.8%) strong earnings report that prompted a considerable "breakaway gap" on 9 times average volume. But the Semiconductor Index ($SOX -3.19%), Biotechnology Index ($BTK -2.41%), and Networking Index ($NWX -1.47%) tumbled.  Financial shares also backpedaled as the Bank Index ($BKX -1.63%) closed a few pennies below its 50-day moving average line, and the Broker/Dealer Index ($XBD -2.97%) suffered a larger loss while falling toward its 50 DMA line.  As for defensive groups, the Gold & Silver Index ($XAU -1.17%) and Healthcare Index ($HMO -0.91%) sank, but they held their ground better than energy-related shares.  The Oil Services Index ($OSX -2.93%) and Integrated Oil Index ($XOI -1.66%) gave way to profit taking pressure following their recent sharp rallies.

Charts courtesy www.stockcharts.com

PICTURED: The Internet Index ($IIX -0.03%) pulled back after reaching new 2009 highs this week.

Pegasystems Inc  (PEGA -$0.96 or -1.02% to $32.76) gapped up today but then negatively reversed for a loss on light volume, pulling back near its 50 DMA line. This high-ranked Computer Software - Financial firm quietly ended the week just above that short-term average line. An upward trendline (not drawn) connecting its July-October lows also coincides in that area, helping define an important technical support level to watch.  Violations could trigger technical sell signals, with its 10/02/09 intra-day low ($30.38) the next chart support level to keep an eye on.

The number of top-rated funds owning its shares rose from 43 in Sep '08 to 80 in Jun '09, which is a solid reassurance concerning the investment system's I criteria. PEGA has shown solid sales revenues increases and +25% earnings increases in the 3 last quarterly comparisons versus the year ago period. It also appears to have an easy comparison in the upcoming report for the quarter ended September 30, 2009 versus the year ago period's earnings of only 6 cents per share. The previously noted downturn in annual earnings (the A criteria) from 2003 to 2006 has been followed by a solid turn around and big earnings increases in '07 and '08, and Street expectations for '09 are calling for well above +25% growth.

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