The major averages snapped a four day winning streak, impacted by sour economic news and a stronger US dollar. Decliners trumped advancers by nearly a 3-to-1 ratio on the NYSE and by a 8-to-5 ratio on the Nasdaq exchange. It was encouraging to see volume contract compared to the prior session on both major exchanges as the market pulled back. Ideally, one would like to see volume expand when the market rallies and contract when it pulls back. There were 11 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 26 issues that appeared on the prior session.  The greater expansion recently occurring in the new highs list has offered encouraging news for growth oriented investors.  

Before Wednesdays opening bell, the country's largest employer ADP said employers slashed -532,000 jobs in May. On Friday, the Labor Department is slated to release its monthly payrolls report which may show that employers cut -520,000 jobs in May. Many analysts believe that the report will show that the unemployment rate will surge to a 25 year high of 9.2%. In other economic news, the Institute for Supply Management’s (ISM) index of service industries was 44 which missed the Street's forecast. The latest studies show that the service industry presently makes up over +80% of the economy.

Federal Reserve Chairman Ben S. Bernanke testified in Washington today and told lawmakers that large US budget deficits threaten financial stability. He also said that the government can not continue to borrow indefinitely to finance the recovery efforts. Bernanke said, “Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth... Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.” These comments clearly show that the government is aware of its radical spending habits.

A slew of commodities got smacked on Wednesday as the US dollar advanced. It is important to remember that the US dollar and commodities are inversely related, meaning commodity prices fall when the dollar rallies. The inverse is also true, such that commodity prices rise when the dollar falls. This relationship is important because the US dollar rallied smartly during the latter half of 2008 while commodities plunged. Meanwhile, the greenback has spent the past few months in a virtual free fall which has helped lift a slew of commodities. Interestingly, the inverse relationship between the dollar and stocks also exists. The major averages have surged since the March near term low while the dollar has virtually imploded.

PICTURED: The S&P 500 Index pulled back and closed near support (930) at recent chart highs.

Charts courtesy www.stockcharts.com

 

PICTURED: The Biotechnology Index ($BTK +3.17%) recently cleared a downward trendline connecting its August '08 and February-May '09 chart highs.  It was a standout gainer today as it rallied above its 200-day moving average (DMA) line. Human Genome Sciences, Inc. (HGSI +15.21%) was among the biotech group leaders. However, its earnings history has been poor, so it would not be appropriate choice under the investment system's guidelines.

Shanda Interactive Ent Ltd (SNDA $+1.06 or +1.75% to $60.99) hit a new all-time high today and then closed in the middle of its intra-day trading range following the release of solid earnings and sales news for the latest quarter. It is extended from a sound base now.  Disciplined investors avoid chasing any stock more than +5% above its pivot point.  Patient investors may watch for a pullback near its 50-day moving average (DMA) line, an important support level which has not been tested since breaking out above resistance at $34.00 back in March. Just featured in the June 2009 issue of CANSLIM.net News. Be sure to review the "What to Look Out For" section and entire detailed summary - read here).

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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.