The major averages got smacked on Thursday after the Labor Department announced a weaker-than-expected jobs report for June. Volume totals were reported lighter on the NYSE and on the Nasdaq exchange as the holiday-shortened week came to a close. Decliners trumped advancers by nearly a 4-to-1 ratio on the NYSE and by a 5-to-1 ratio on the Nasdaq exchange. 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, much lower than the 15 issues that appeared on the prior session.

On Monday, stocks rallied as investors prepared for a shortened holiday week. In recent months, the market has enjoyed hefty gains after a flurry of stronger than expected economic data was released. The Federal Reserve Bank of Boston President Eric Rosengren said, US GDP "is expected to start being positive in the second half of this year." When questioned about unemployment he said, "The unemployment rate is likely to lag so that the peak in the unemployment rate is likely to be sometime early next year." This pretty much summarizes the Street's view on the economy. However, as the week progressed a series of distribution days showed up as the major averages failed to break above formidable long term resistance (shown above) in recent weeks.

On Tuesday, the major averages ended the last day of the second quarter lower as consumer confidence unexpectedly fell and home delinquencies more than doubled. Since early March, the small cap Russell 2000 Index has emerged as the standout winner, surging a whopping +56%! The tech-heavy Nasdaq Composite Index is a close second, after vaulting +49%. Meanwhile, the S&P 500 Index raced +44% higher and the Dow Jones Industrial Average rose +37%. It is important to note that the vast majority of stocks that helped the major averages rally were beaten down, low-ranked stocks bouncing from egregiously oversold levels, not fresh high ranked leadership! There have been a few high-ranked stocks that triggered technical buy signals over the past 17 weeks, and the vast majority of them have technically failed or they were tremendously volatile and difficult for disciplined investors to effectively trade for profits (i.e. Netflix Inc (NFLX) and Neutral Tandem Inc (TNDM). That said, until the major averages trade above their long multi-year downward trendlines, the market's sideways to lower action may likely continue. Until then, patience is necessary, and cash is king.

On Wednesday, the first trading day of the third quarter, stocks ended higher after a slew of stronger-than-expected economic data was released. Before Wednesday's opening bell, the country's largest employment services firm, ADP, said employers cut -473,000 in June. This was about the same as May's adjusted reading of a -485,000 cut. A separate report showed that factory orders rose +0.7% in April. Elsewhere, the Institute for Supply Management's (ISM) manufacturing index continued to rise toward positive territory. The index rose to 42.8 in May from 40.1 in April. The National Association of Realtors released a report which showed that pending home sales was little changed in May, at 90.7. However, the index did rise on a year-over-year basis, gaining +3.2%. A pending sale is one in which a contract for a new home was signed, but not yet closed. Normally, it takes approximately four to six weeks to close a contracted sale.

Before Thursday's opening bell, the Labor Department said US employers slashed -467,000 jobs last month as the unemployment rate rose to +9.5% which is the highest level since 1983! Almost immediately, equity futures tanked which set the stage for a down day on Wall Street. Thursday's light volume totals were below average, however there have been at least 5 or 6 distribution days for the Dow Jones Industrial Average, the benchmark S&P 500 Index, the Nasdaq Composite Index, and the NYSE Composite Index in recent weeks. In addition, the Dow Jones Industrial Average and S&P 500 index have again violated their respective 50-day moving average (DMA) lines, which puts serious pressure on the current uptrend -if not officially ending this aging rally.

For the past few weeks, we have repeatedly highlighted the shortcomings of the confirmed rally, which has just finished its 17th week.  This re-emphasizes the importance of raising cash. Until a new batch of leadership emerges and the major averages rally above their respective longer-term downtrend lines (resistance), or both, the market's sideways to lower price action appears likely to continue.

PICTURED: The monthly chart of the Dow Jones Industrial Average shows prior bull and bear market phases.  The blue chip index is pulling back after encountering resistance near its multi-year downward trendline.

Broad losses on Friday led to large losses in energy-related shares and drove the Oil Services ($OSX -4.39%) and Integrated Oil ($XOI -3.47%) indexes further below their 50-day moving average (DMA) lines.  The Healthcare ($HMO -4.97%) group's vital signs also slumped badly.  The Retail Index ($RLX -3.96%) and the tech sector were also punished with big losses as the Biotechnology ($BTK -3.31%), Networking ($NWX -3.17%), and Internet ($IIX -2.10%) indexes outpaced the Semiconductor Index ($SOX -1.20%) on the downside.  

The Gold & Silver Index ($XAU -3.00%) offered no safe haven for those seeking shelter there. Cash is currently king!  Investors expecting to see commodity-linked areas rise in a typical inverse relationship with a falling US dollar might take note of the Investing For The New Millennium column titled "Down On Dollars?" published in the July 2009 issue of CANSLIM.net News earlier this week (read here).

Charts courtesy www.stockcharts.com

PICTURED: The Bank Index ($BKX -3.01%) has slumped under its 50-day moving average (DMA) line in recent weeks. Since financial shares are a valuable leading indicator, any breach of recent chart lows would raise concerns and hurt the near-term market outlook.  On the other hand, any subsequent rally above the 200 DMA line (the red line) would be a very encouraging sign for all investors with market interest.

Shanda Interactive Ent Ltd (SNDA -$1.12 or -2.06% to $53.15) gapped down today for a loss on light volume, sinking below its 50-day moving average (DMA) line again. Deterioration below its recent chart low near $50 would raise more serious concerns and trigger a worrisome technical sell signal, especially if volume swells behind more damaging losses. Losses on heavy volume in recent weeks were noted as they signaled distributional pressure leading to violations of it upward trendline and 50 DMA line.  Its Accumulation/Distribution rank also reflects the recent action, having fallen from a respectable B on June 3rd, to a rather dismal D- today! 

A closer look at its chart identified a worrisome "island reversal" pattern in the annotated graph included with the stock's last appearance in this FSU section on June 25th, and any members who may not have noted that ominous pattern before should take time now to review that earlier report (read here). After featured in the June 2009 issue of CANSLIM.net News (read here), SNDA quickly got too extended from a proper buy point. Its outlook now grows increasingly questionable the longer and deeper it slumps into its prior base below it previous chart highs in the $53 area.  More time is needed for it to form a new sound base such as "double bottom" in the coming weeks.

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.