The major averages experienced their largest single day-decline in over a month after a key manufacturing report unexpectedly fell and jobless claims grew more than forecast. Volume was reported at above average levels near but just under the prior session's totals on the NYSE and on the Nasdaq exchange. The lower volume helped the market indices avoid another distribution day, however breadth was very negative as decliners led advancers by a 5-to-1 ratio on the NYSE and by a 4-to-1 ratio on the Nasdaq exchange. There were only 8 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, down markedly from the 21 issues that appeared on the prior session. New 52-week highs still outnumbered new 52-week lows on both exchanges.

Stocks got smacked on the first day of the fourth quarter after a batch of weaker than expected economic data was released.  The Labor Department said the number of Americans filing first-time claims for unemployment benefits rose by +17,000 to 551,000 last week. Before Friday's opening bell, the Labor Department is slated to report a last month's unemployment data. The concern here is that unemployment has been raising for the past few months and many pundits are concerned that the effects of the world-wide stimulus program are beginning to wane. The International Monetary Fund (IMF) believes that these two factors will hinder economic growth for 2010. The IMF believes that the US economy will grow by +1.5% in 2010, after contracting -2.7% in 2009.

The bears showed up and sent the market lower after the Institute for Supply Management (ISM) said its manufacturing index slid to 52.6 in September which was lower than the reading of 54 projected by economists. This echoed yesterday's weaker than expected Chicago PMI report. The benchmark S&P 500 Index surged nearly +15% in the third quarter which was the strongest quarterly gain in over a decade. The S&P 500 Index rallied a stunning +34% in the past two quarters which is the largest back-to-back quarterly gain since a +42% surge in the first half of 1975. The blue chip Dow Industrial Average vaulted +15% last quarter and advanced +29% since the end of Q1, which is the largest two-quarter rally since 1986! From our perspective, the current rally which is currently in its 30th week is getting tired and appears to be under pressure since the September 23, 2009 negative reversal. Since then, there have been a flurry of distribution days and a series of leading stocks have been hit. Looking forward, the next area of support is the 7-month upward trendline and 50-day moving average (DMA) line for each of the major averages. If those technical levels are breached, downward momentum could more likely build and be expected to bring even lower prices. 

Raising cash and avoiding a considerable setback is easy, and it is definitely the thing to do if the market conditions continue to erode. Take a look carefully at each of your holdings on a case by case basis, and simply remove the weakest performers first. Never let any losses grow larger than 7-8% without taking action and selling.

Charts courtesy www.stockcharts.com

PICTURED: The Bank Index ($BKX -4.98%) was a standout decliner, sinking right to its 50-day moving average line. Prior chart lows coinciding with its May high (old resistance) are the next technical support level to watch.  Long-time CANSLIM.net members know how important it is to monitor financial shares' direction, since they are a proven leading indicator.

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.