The major averages jumped on Tuesday as traders returned from a long holiday weekend. As expected, volume was reported lower than Friday's heavy options expiration levels on the NYSE and on the Nasdaq exchange. The lower volume rally suggested that large institutions were not aggressively buying stocks. Advancers trumped decliners by over a 3-to-1 ratio on the NYSE and by over a 2-to-1 ratio on the Nasdaq exchange. There were 26 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, higher than the total of 15 issues that appeared on the prior session. New 52-week highs still solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

In recent months we have seen stocks jump on the first trading day of the week before the bulls get tired and stocks fade in the latter half. On Tuesday, healthcare companies were among the biggest gainers as US Democrats face the possibility of losing a Senate seat held by the late Edward Kennedy as voters go to the polls in Massachusetts. If the Democrats lose the election, it could cost them a 60-vote super-majority needed to help pass President Barack Obama's massive health-care package. 

Companies continue reporting earnings in droves this week as there will be approximately 65 companies in the S&P 500 that are slated to release earnings by Friday. So far, earnings have been strong but the major averages have barely budged. Analysts believe that earnings surged +67% in the fourth quarter which would snap a record nine quarter losing streak. Remember that since the March low, the benchmark S&P 500 is up +70% which is the single largest stock market rally since the Great Depression! The robust rally sent the index’s price-earnings multiple (a.k.a P/E Ratio) to 25 last week, up from 10.1 in March 2009 which was the lowest reading in a quarter century.

For the most part, the major averages and leading stocks are acting well as investors continue to digest the slew of economic and earnings data being released each day. Until a clear picture can be formed as to how companies fared last quarter, one could easily expect to see more of this sideways action to continue. The market just began its 46th week since the March lows and the rally remains intact as long as the major averages continue trading above their respective 50-day moving average (DMA) lines.

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Commodity-linked areas posted gains as the Integrated Oil Index ($XOI +1.14%), Oil Services Index ($OSX +1.30%) and Gold & Silver Index ($XAU +0.65%) rallied.  Gains from the influential Bank Index ($BKX +1.03%), Broker/Dealer Index ($XBD +0.78%), and Retail Index ($RLX +0.86%) helped underpin the major averages' advance.  The tech sector posted unanimous gains as the Semiconductor Index ($SOX +1.79%), Biotechnology Index ($BTK +1.54%), Networking Index ($NWX +1.36%), and Internet Index ($IIX +0.91%).  The Healthcare Index ($HMO +2.29%) group also posted a solid gain, rounding out a widely positive session.

Charts courtesy www.stockcharts.com

PICTURED: The Healthcare Index ($HMO +2.29%) group posted a gain for a new 52-week high.

Smartheat Inc. (HEAT +$1.27 or +8.00% to $17.14) posted a solid gain today with average volume, helping repair recent technical damage. It rallied to its third highest close ever. It is currently consolidating well above prior chart lows and its 50-day moving average (DMA) line coinciding in the $14.00 area as important support levels. Its latest breakout from a short "ascending base" type pattern was noted, however distributional action last week promptly negated its bullish 1/12/10 gain as it slumped back into its prior base.  The weak action suggested that profit taking pressure was to blame.  After getting off to a strong start, HEAT traded as much as +55.0% higher in the more than 8 week period since first featured in yellow in the 11/17/09 mid-day report (read here).  While it could make a stand and go on rallying, time is needed to allow for a sound new base to form.

The number of top-rated funds owning an interest in its shares rose from 3 in Jun '09 to 26 in Dec '09, which is reassuring concerning the I criteria. The 3 latest quarters show sales revenues and earnings increases well above the +25% guideline, satisfying the C criteria. There is limited history for this small Chinese firm in the Pollution Control - Equipment group, however its reported annual earnings (A criteria) history has been strong.

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.