Stock markets around the ended slightly higher, which was minor compared to the Friday and Monday sell-off which took the wind out of the bulls' sails. The fact that volume fell on both the NYSE and the Nasdaq suggests that the large institutional investors were not aggressively accumulating shares on Tuesday.  In Monday's CANSLIM.net Market Commentary, we noted the strong two-day sell off put pressure on the current rally, but the newspaper took it one step further and actually said the market fell into a "correction". There is no need to split hairs over the semantics - the same point applies: proceed with patience and caution until a new batch of high-ranked leaders emerge and the major averages begin moving higher again.

Advancers led decliners by more nearly a 4-to-1 ratio on the NYSE and by nearly a 3-to-1 ratio on the Nasdaq exchange. There were only 5 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. New 52-week highs outnumbered new 52-week lows on both exchanges, and new lows were in the single digits.

The latest rally began with a confirmation day on the March 12, 2009, a  follow-through day when the major averages rallied on impressive volume. That rally was dominated by low-ranked and low priced stocks that enjoyed monstrous moves from egregiously oversold levels. The classic example which perfectly illustrates this point is Citigroup (C +3.5%). Citigroup soared from $0.97 to over $4 in the next few months. This type of action helped the major averages enjoy their massive moves, but made it difficult for classic growth investors to make progress in the market since high-ranked stocks were not participating in the early phases of the rally. The dearth of high-ranked leadership was our primary concern during the entire five and half month rally. On Monday, August 17, 2009 that rally which sent the major averages on an explosive run ended, as the action in the major averages and leading stocks indicated a correction.

What does this mean? Typically, when a market is in a correction the major averages decline, which means that 3 out of 4 growth stocks decline as well. That said, one would be wise to raise cash or at the very least tighten your stops to protect your capital. In addition, the guidelines say that any new buys should be avoided until a new rally is again confirmed. In order for a new rally to be confirmed, the major averages must produce a sound follow-through day and a new batch of high-ranked leaders should trigger fresh technical buy signals. Stay tuned to CANSLIM.net's daily market commentary to find out exactly when that occurs so you will be ready to take the necessary action.  Until then, patience and caution would serve you well. 

PICTURED: The Dow Jones Industrial Average slid into a correction on Monday August 17, 2009 which effectively ended its five and a half month rally that began on March 12, 2009.

The Broker/Dealer Index ($XBD +2.17%) and Bank Index ($BKX +2.19%) were among Tuesday's positive influences.  The tech sector was led higher by the Networking Index ($NWX +3.05%) and Semiconductor Index ($SOX +2.01%), with smaller gains from the Internet Index ($IIX +1.17%) and Biotechnology Index ($BTK +0.80%). Commodity linked areas were also on the rise, with the Oil Services Index ($OSX +2.40%), Integrated Oil Index ($XOI +1.26%), and Gold & Silver Index ($XAU +1.50%) posting gains.  The Retail Index ($RLX +1.77%) also traded up, meanwhile the Healthcare Index ($HMO -0.78%) backpedaled.

Charts courtesy www.stockcharts.com

PICTURED: The Bank Index ($BKX +2.19%) is consolidating near prior chart highs.

NVE Corp (NVEC +$0.46 or +0.91% to $50.78) has been consolidating in an orderly fashion toward prior highs and the stock's 50-day moving average (DMA) line (now $48.66) - important support levels. Throughout its ongoing advance, NVEC has found support near its 50 DMA line. Caution is warranted now, as eventually a more substantial correction is bound to come, and broader market conditions (the M criteria) appear to be weakening. NVEC has traded up as much as +69.87% since it was first featured in yellow at $33.85 in the Friday, March 13, 2009 Mid-Day Breakouts Report (read here). It was featured in the 7/23/09 Mid-Day BreakOuts Report (read here) after it gapped up for a considerable gain on heavy volume following news of stronger sales revenues (+41%) and solid earnings increases for the quarter ended June 30, 2009. The technical action was described as a "breakaway gap" from a valid ascending base.

It has a very small supply of only 4.68 million shares outstanding. This is another good reason to be especially disciplined about proper entries and exits.  A small supply is generally considered a good sign with respect to the S criteria, yet could contribute to great volatility in the event of institutional accumulation or distribution. This high-ranked Electronics - Components leader has a good quarterly and annual earnings growth history (C & A criteria).

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.