The major averages bounced off support this week as the bulls showed up and quelled the latest round of selling pressure. Volume was reported lighter, revealing no great buying conviction or further distribution from the institutional crowd. Advancers led decliners by a 3-to-2 ratio on the NYSE and by a 2-to-1 ratio on the Nasdaq exchange. There were 46 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 from the 57 issues that appeared on the prior session. New 52-week highs were in the triple digits, substantially outnumbering new 52-week lows, the later of which were in the single digits on both major exchanges.  The recent expansion in the new highs list is another encouraging sign of healthier market action, as any sustainable market rally requires a healthy crop of strong leaders.

The major averages bounced off their respective 50-day moving average (DMA) lines on Monday after the dollar fell and the Institute for Supply Management(ISM) released a strong service index. The ISM released its gauge of non-manufacturing businesses (a.k.a. service index) which was stronger than expected and the first month of "positive growth" in a year.  The index rose to 50.9, which was slightly above the boom/bust line of 50 and higher than the 48.4 reading expected on Wall Street. 

On Tuesday, the market continued to rally as speculation spread that third quarter earnings will top estimates. Overnight, the Australian Central Bank surprised the world and raised their overnight cash rate target to 3.25% from a 49-year low of 3%. The Australian Central Bank was one of the first major central banks to raise rates after the coordinated global stimulus package was passed last year. The Australian Central bank said that they are raising rates to help offset the possibility of inflation as the economic recovery continues. Another negative data point for the greenback was that several world governments reportedly met to discuss the notion of replacing the dollar as the primary means to trade crude oil. The group mulled a notion to use a basket of currencies to replace the dollar. Both events put significant pressure on the dollar which in turn sent stocks and a slew of commodities higher. After Tuesday's close, Alcoa (AA -0.77%) officially kicked off the third quarter earnings season when they reported a Q3 profit of $77 million. 

On Wednesday, stocks ended mixed as gold surged to a new all-time high, and earnings season officially began. Analysts believe that this earnings season will mark the ninth consecutive quarterly decline in corporate profits as the economy begins showing signs of a recovery. Now that earnings season has officially begun, it is imperative to watch how your stocks react to their Q3 results. 

On Thursday, housing stocks caught a bid after Treasury Secretary Timothy Geithner said the housing market is improving and House Speaker Nancy Pelosi said Congress will consider extending a tax-credit for home buyers. The government reported that first-time jobless claims fell to 521,000 last week, which was the lowest level since January and lower than the Street's estimate of 540,000 claims. Stocks advanced after retail sales rose for the first time in 13 months as discounts continued to attract shoppers. Retail Metrics released a report that showed sales at US chains open at least a year rose +1.1% last month and nearly seventy percent of retailers reported sales results that exceeded the average of estimates it has compiled. The US dollar fell again, which sparked a rally in commodities and helped send gold to another new all-time high.

Stocks rallied on Friday even as the dollar advanced, which is considered "consolidating" after its recent decline. In a surprise move, President Obama was awarded the Nobel Peace Prize. The White House staff said it was a "total surprise" and claimed they were unaware of the nomination. The market rally remains in full swing as the bulls showed up and defended support during the first week of October. As long as the major averages continue trading above support (respective 50 DMA lines and 7-month upward trendlines) the bulls deserve the bullish benefit of the doubt.

Charts courtesy www.stockcharts.com

PICTURED: The Broker/Dealer Index ($XBD +0.85%) posted 5 consecutive gains and rallied to new 2009 highs, which bodes well for the current market rally (the M criteria).  Many firms in this industry group have endured huge losses in the past year or more which hurts their annual earnings histories (A criteria), making the stocks not meet all of the investment system guidelines.  However, the ongoing strength of the financial group serves as a very important leading indicator concerning the overall market outlook.

Netease.com Inc (NTES -$1.18 or -2.91% to $40.51) gapped down today, falling hard for a second day in a row with more than twice average volume, a clear sign of distributional pressure. Based on weak technical action it will be dropped from the Featured Stocks list tonight. The high-ranked Internet - Content firm traded up more than +80% following its appearance at $26.85 in the April 2009 issue of the monthly newsletter, CANSLIM.net News (read here). On 10/08/09 it triggered a technical sell signal with its loss on above average volume that more decisively violated its 50 DMA line and the upward trendline connecting its July-September chart lows. After encountering heavy distributional pressure in August, NTES had made an admirable stand above its 50 DMA line and prior chart highs in the $38 area. Now, any subsequent deterioration under its August lows could complete a worrisome "double top" pattern which would have additional bearish implications. Its color code was changed to green on 9/30/09 based on having promptly negating its latest breakout and then trading more than -7% below its pivot point.

Its last appearance in this FSU section under the headline, "Encountered Prompt Resistance When Rising From Late-Stage Base", included an annotated graph showing it falling toward important support at its upward trendline and its 50-day moving average (DMA) line where it was said "violations would raise concerns and trigger sell signals."  Since then it technically broke down and it has failed to produce gains with anything other than light volume behind them.  Now it would need to promptly rebound above its short-term average for its outlook to improve and possibly return to the Featured Stocks list.

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.