The major averages closed lower after a series of mixed economic data was released. Volume, a critical component of institutional demand, was heavier than Tuesday's levels across the board which marked a distribution day for the Nasdaq Composite Index, but percentage-wise the losses were too small on NYSE indices to constitute a distribution day. Decliners led advancers by an 8-to-7 ratio on the NYSE and by a 3-to-2 ratio on the Nasdaq exchange. There were 40 high-ranked companies from the CANSLIM.net Leaders List making a new 52-week high and appearing on the CANSLIM.net BreakOuts Page, the same number of issues that appeared on the prior session. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.

The big economic news of the day was released before the market opened, at 8:30AM EST. In Washington D.C., the Labor Department released a stronger-than-expected consumer price index (CPI) which ignited inflationary concerns. Headline CPI rose +0.3% which was higher than the Street's forecast for a +0.2% gain.  Core CPI, which excludes food and energy, was unchanged from last month's reading of a +0.2% gain. However, core prices also topped the Street's estimate for a +0.1% gain and is the component of the report that the Federal Reserve tends to focus on. The uptick in consumer prices sparked concern that companies will have little room to raise prices this holiday season (which curbs earnings) due to the fact that unemployment is at a 26-year high of +10.2% and wages fell -5.2% in September from the same period last year. The Commerce Department released a separate report which showed that housing starts unexpectedly tanked last month. Housing starts (a.k.a registrations for new construction for residential housing units), slid -10.6% in October which was well below estimates. Permits for new construction slid -28.9% from the same period last year which led many to question the sustainability of the housing recovery.

Slightly positive action from the Bank Index ($BKX +1.36%) and Broker/Dealer Index ($XBD +0.60%) was not enough to offset mild losses elsewhere. The Retail Index ($RLX +0.05%) was flat while the tech sector traded with a modestly negative bias, sending the Networking Index ($NWX -1.42%), Biotechnology Index ($BTK -1.34%), Semiconductor Index ($SOX -0.85%), and Internet Index ($IIX -0.35%) lower.  Defensive areas were also on the decline as the Oil Services Index ($OSX -1.07%), Gold & Silver Index ($XAU -1.45%), Healthcare Index ($HMO -0.93%), and Integrated Oil Index ($XOI -0.17%) created an additional drag on the major averages.

Charts courtesy www.stockcharts.com

PICTURED: The Gold & Silver Index ($XAU -1.45%) is consolidating above prior chart highs.

Longtop Financl Tech Ads (LFT +$0.39 or +1.21% to $32.61) opened with a breakaway gap up today that helped it blast from a choppy 14-week base, confirming a powerful technical breakout with heavy volume. However, its close near the session low raised some concerns because it technically put it back below its pivot point after it had briefly traded above its "max buy" price and above Oct 2007 all-time high. Recent highs in the $31 area are an initial support level to watch.

The newspaper described it differently, mentioning a "deep handle" with light volume.  However, the correction from its $31.25 high to its $25.65 low was more than just a deep handle.  It retraced more than 50% of its prior rally from its $23.31 low, making it not a proper cup-with-handle. That is why it was described as a choppy base instead. From the book "How To Make Money In Stocks" we have studied many examples that rose many-fold in price. The book emphasizes that there is no need to get in "early", because any stock that goes to $60 must first clear $32, $33,and $34.  Point being, we prefer to be careful about following the rules.

A proposed offering of additional shares on 11/16/09 seems well received by the market. Its fundamentals remain strong.  The number of top-rated funds owning an interest in its shares rose from 20 funds in Dec '08 to 42 funds in Jun '09, which is reassuring concerning the L criteria.  It has reported strong annual and quarterly earnings increases (good concerning the C & A criteria) backed by strong sales revenues increases. Return on Equity of +20% is above the +17% guideline. Its progress could be hindered by future share offerings. This Chinese Computer Software firm had filed a registration of approximately 16 million shares for resale which was noted in previous analysis.  LFT was first featured at $22.19 on Thursday, April 02, 2009 in the CANSLIM.net Mid Day Breakouts Report (read here).

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.