Stocks got smacked on Thursday as the dollar and shorter-term Treasuries rose after a series of negative economic data was released. Volume totals were mixed compared to the prior session; higher on the Nasdaq and lower on the NYSE. Decliners trumped advancers by almost a 3-to-1 ratio on the NYSE and on the Nasdaq exchange. There were 9 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 10 issues that appeared on the prior session. New 52-week highs still outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

The major averages negatively reversed, effectively ended their latest rally attempt and reset the day count after a slew of weaker than expected economic data was released. Stocks reacted poorly to Obama’s first State of the Union address largely due to his plan to increase taxes on the upper class and his plan to end proprietary trading and hedge-fund investments at large banks. Some highlights from his speech were: “the worst of the storm has passed, we face a deficit of trust, and that he wasn’t interested in punishing banks." For the past ten days, investors were concerned that Congress would not reconfirm Federal Reserve Chairman Ben S. Bernanke for another term. However, those concerns were allayed four minutes before the closing bell when CNBC reported that Bernanke received enough votes for a second term.  

Large cap technology stocks got smacked on Thursday after Qualcomm Inc. (QCOM -14.24%) gapped lower after lowering guidance for 2010. Qualcomm, the largest manufacturer of mobile-phone chips, said a “subdued” economic recovery caused the company to lower its forecast. A host of other large cap tech stocks got smacked on similar concerns. The Dollar Index, which tracks the greenback against six major counterparts, rallied for a third straight day which put pressure on dollar denominated assets- mainly stocks and commodities. 

The economic data of the day was less than stellar. Durable goods missed estimates and experienced its largest decline in history in 2009! The report, which tracks goods made to last at least 3 years, showed that the manufacturing sector was slowly improving. In December, new orders rebounded +0.3% after a revised -0.4% decline in November. Excluding the highly volatile transportation component, new orders rose another +0.9%, following a +2.1% rebound in November. Elsewhere, investors were disconcerted to see that jobless claims fell -8,000 last week to 470,000 (prior week revised -4,000 lower to 478,000). It was somewhat encouraging to see the smoother four week average rise +9,500 to 456,250 for a second straight week but the overall report suggests that the jobs market is still weak.

Looking at the market, Thursday's ominous action took our Wednesday's lows and effectively ended the brief rally attempt which suggests a steeper correction may unfold. It is also important to see how the major averages react to their respective 50-day moving average (DMA) lines which were support and are now resistance. Until they all close above that important level the technical damage remaining on the charts is a concern. So far, the market's reaction has been tepid at best to the latest round of economic and earnings data. Remember that the recent series of distribution days coupled with the deleterious action in the major averages suggests large institutions are aggressively selling stocks. Disciplined investors will now wait for a new follow-through day to be produced before resuming any buying efforts. Until then, patience is paramount.

Charts courtesy www.stockcharts.com

PICTURED: The Semiconductor Index ($SOX -3.02%) suffered a big loss after failing to repair last week's 50-day moving average (DMA) line violation.  Among the prominent tech names that created a drag on the tech sector Thursday, Qualcomm Inc (QCOM -14.24%) dove after giving investors a disappointing outlook. Meanwhile, Apple Corp (AAPL -4.13%) gapped down and slumped under its 50 DMA as investors reacted skeptically to the launch of its new iPad tablet computer.

Credit Acceptance Corp (CACC +$0.48 or +0.91% to $53.12) has traded as much as +59.80% higher since it was featured in yellow in the 9/29/09 mid-day report (read here) when a breakout gain was backed by more than 2 times average volume. After it was initially featured, it went on to later build a new sound base on top of its prior base. New pivot point and max buy levels were noted on 11/19/09, yet it stubbornly held its ground in a tight range for another month plus before finally blasting to new all-time highs with heavy volume on 12/16/09.  It has hardly dipped lower since, and the latest gains leave it very extended from its latest base. It is well above its 50-day moving average (DMA) line, an important support level to watch above its previous chart highs at $37, the next important support level to watch.

Disciplined investors avoid chasing extended stocks that have risen more than +5% above their prior chart high or pivot point.  If they miss the ideal window of opportunity, patience may allow investors to accumulate shares on light volume pullbacks, or when another new base forms and a new buy signal is triggered. Investors can then "force feed" their winners by adding to already profitable positions whenever additional buys can be made within the proper parameters. According to the investment system rules, averaging down should never be done.  

On Monday Jan 25th the company announced the pricing of $250 Million Senior Secured Notes. The Finance - Consumer/Commercial Loans firm has maintained a great track record of annual and quarterly sales revenues and earnings increases that satisfy the C and A criteria of the investment system.  Right now, however, the M criteria is an overriding concern which discourages new buying efforts until a proper follow-through day emerges.  Should market conditions further erode, investors may be further prompted to consider locking in profits to raise cash.

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.