The major averages fell again on Tuesday, sending the benchmark S&P 500 Index to its largest two-decline since April.  Sentiment turned sour after Best Buy Co. (BBY -7.29%) reported lackluster sales data, increasing concerns that the economic rebound will slow. Volume totals were reported higher on both major US exchanges which added another distribution day to the count. Decliners trumped advancers by over a 2-to-1 ratio on both major exchanges. There were only 3 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 2 issues that appeared on the prior session.  A further expansion in the new highs list would offer encouraging news for growth oriented investors. 

Best Buy, the world’s largest electronics retailer, gapped down and sliced below its 50 day moving average (DMA) line. The company said profits slid -2% last quarter. This cast a dark cloud over Wall Street and led many to speculate how strong the economic recovery actually is. In other news, President Obama spoke about advanced financial regulations and how to protect the economy from falling out of bed like what happened in late 2008.

There was mixed news on the economic front. Housing starts in May showed surprising strength while producer prices eased. Housing starts jumped +17.2% in May which followed a -12.9% drop in April. The annualized rate in May was 0.532 million units. This was a -45.2% drop from the same period in 2008. However, it was above the Street's estimate for 0.500 million units. Elsewhere, producer prices fell in May and were below expectations. The inflation component of the report (core prices) also fell. Overall producer prices eased to a +0.2% gain after rising +0.3% in April. May's reading was far short of the +0.7% increase the Street had expected. Core prices fell -0.1% in May which helped ease inflationary concerns.

The market rally appears to have ended as all the major averages sliced below near term support levels. The Dow Jones Industrial slid below its 200 DMA line which is an important area of support. The next area of support for the other major averages is their respective 200 DMA lines. To support this thesis, Morgan Stanley (MS -1.06%) released a report on Tuesday that said the current rally in US stocks may be over. Goldman Sachs Group Inc. (GS +0.80%) chief economist Jim O’Neill said financial markets may weaken in the next few weeks as concern spread regarding the governments’ intentions to scale back on rolling backing stimulus packages. Remember the best way to interpret market action is to objectively study price and volume. Since the market sliced below support earlier this week there is significant pressure on this mature (15-week) rally.

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PICTURED: The Dow Jones Industrial Average sliced and closed below support at prior chart highs and its 200 DMA line on Tuesday.

Charts courtesy www.stockcharts.com

PICTURED: The Retail Index ($RLX -3.10%) sliced below its 50-day moving average (DMA) line.  Not long ago it promptly repaired a 50 DMA violation.  Further deterioration leading to a break below recent chart lows would not bode well for retailers' outlook.

HMS Holdings Corp (HMSY +$1.18 or +3.16% to $38.48) gapped up today and hit a new high with a solid gain on heavy volume, triggering a technical buy signal. The Commercial Services - Healthcare firm was helped by the healthcare group's standout gains on a mostly negative session. In its last appearance in this Featured Stock Update section, under the headline "Building An Orderly Flat Base" on June 11th (read here), an annotated graph showed it trading toward the high end of a near 5-week flat base above its 50-day moving average line.  During its latest base its daily volume totals dried up, yet the volume behind its breakout to new highs (the N criteria) day was nearly two and a half times its average volume total.  The heavy volume and gap up also provided a nice reassurance of institutional (the I criteria) buying demand.

A downturn in 2006 earnings is a fundamental flaw in HMS Holdings Corp's annual earnings history that raises some concerns with respect to the A criteria of the investment system.  Investors' odds are usually better with a company that has a steady 3-5 year earnings growth history.  This stock was first featured on Friday, February 20, 2009 in the CANSLIM.net Mid Day Breakouts Report (read here), then dropped from the Featured Stocks list on 4/02/09 due to weak action, returning yet again in yellow in the mid-day report on 5/01/09.

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.