The major averages ended with modest losses on Monday after traders enjoyed one of the last few weekends of the summer. The S&P 500 Index slid from a 10-month high as the market continues to digest the market's recent move. Remember that the S&P 500 rose +2.3% last week and jumped above the psychologically important 1,000 mark for the first time since November 2008, as a series of stronger-than-expected earnings and economic data helped lift stocks. So far second quarter earnings have been stronger than expected which has played a pivotal role to the markets robust advance since early March and the economic data has improved markedly in recent months which has also helped the bulls case.

Interestingly, the benchmark S&P 500's P/E ratio jumped to 18.6 at the Monday's opening bell which is the highest ratio since December 2004. Even though the index as rallied smartly since its March low of 666, the index must rally another +55% to surpass its all-time high of 1,565.15 set on October 9, 2007. For those of you that like market trivia - before November 2008, the S&P 500 had remained above the 1,000 mark for five consecutive years.

Many people now believe that the recession has effectively ended and we are in the very beginning phases of a new recovery. These same people believe that a new bull market has begun thanks to the monstrous rally enjoyed by the major averages since early March. Instead of guessing, we shall simply say that we are currently in a strong uptrend (one of the strongest for the major averages in decades) and that leadership is beginning to emerge. Until July, new leadership was continually cited as the critical missing component of the rally.  With better leadership showing up in recent week, growth oriented investors have a better market environment (the M criteria) with better odds of success.

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PICTURED: New leadership has expanded in recent weeks, helping the Dow and other major averages rally to new 2009 highs.

The Healthcare Index ($HMO +0.81%) rose modestly and the Integrated Oil Index ($XOI +0.05%) and Oil Services Index ($OSX +0.42%) posted smaller gains while most groups failed to make headway on Monday.  The Bank Index ($BKX +0.18%) inched higher, but the Broker/Dealer Index ($XBD -1.29%) backpedaled.  Weak action for the Retail Index ($RLX -1.99%) and tech shares' sluggishness hurt the major averages' ability to rally.  Losses for the Networking Index ($NWX -1.35%) and Semiconductor Index ($SOX -1.20%) dragged the tech-heavy Nasdaq down slightly worse than its peers, while the Biotechnology Index ($BTK -0.13%) and Internet Index ($IIX +0.01%) ended with little change. 

Charts courtesy www.stockcharts.com

PICTURED: The Gold & Silver Index ($XAU -2.03%) suffered a 4th consecutive loss and fell near its 50-day moving average line (the blue line on the chart above).  It has traded above and below that important short-term average line several times since April, yet it has generally been on the rise since its 50 DMA line crossed above its longer-term 200 DMA line (the red line) in a bullish fashion.

Netease.com Inc (NTES +$1.61 or +3.68% to $45.36) closed with a gain on below average volume today.  Caution is advised because it is extended from its latest base. Support to watch is near prior chart highs and its 50-day moving average (DMA) line, both of which coincide near the $38 level. Its most recent gains have lacked great volume conviction.  On 7/22/09, when it finally produced a considerable gain on +52% above average volume (above the minimum volume guideline for buyable breakouts) it had already rallied above its "max buy" level.  That means it was hard or impossible for disciplined investors to justify buying this high-ranked Chinese Internet - Content firm since its color code was changed to yellow with a new pivot point cited in the 7/17/09 Mid-Day Breakouts Report (read here). At that time, it managed to break out from a 5-week flat base but it was noted for the fact that it came with only  +44% above average volume, below the investment system's guidelines for a proper technical buy signal.

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.