The Next Evolution

Traders,

Don't analyse

Don't analyse

Don't go that way

Don't lead that way

That would paralyse your evolution

-- The Cranberries, “Analyze”

Our current position:

NO BIAS

In this week's edition you will find:

• Where We Are
• What Was Important About Last Week
• What We Are Watching For This Week
• A Word On Discipline

The following sections are on our home site:

• The Growth Stock Landscape
• What We Like - What We Have
• This Week's Scans

Where We Are:

Taking a look at the broader market:

Big money is back in action as evident by increased volume on the major exchanges.

So where’s the edge? The short answer is it’s too early to tell. Two weeks ago we saw heavy buying power, last week it was heavy selling power.

Under uncertainty, it’s always riskier to take the Bearish bet.

We would not be surprised to see price-action consolidate for a stretch – especially in a month historically poor for stocks.

Traders continue to favor Consumer issues over Cyclicals, which translates to a risk adverse tolerance that shuns Technology and Small Caps.

The Nasdaq and Russell 2K are doing their best to reverse sharp downtrends, but they’re just not there yet.

No way will a cyclical Bullish leg develop without the support of the Naz and Russell – and if these indexes resume southern courses expect the broader market to follow.

Holding up the Bull’s cause, we see leadership in Telecoms (the lone tech sector we can put in this list), Healthcare, Pharmaceuticals and REIT’s.

We see decent resilience in Banking, which always bodes well for broad market action.

Weakness in Transportation remains a concern.

Technically speaking:

The Dow Industrial Average ($INDU), -0.6%, remains in an uptrend above its major moving averages as it approaches May’s high.

The S&P 500 ($SPX), -0.9%, also remains in an uptrend above its major moving averages as it approaches May’s high.

Nasdaq ($COMPQ), -1.2%, continues to lag the Dow and S&P 500 as it trades below its 200-day average, though above its 50-day average. A break above last Monday’s high will be a significant technical hurdle in clearing a lower base formation.

Russell 2000 ($RUT), -1.8%, also continues to lag the Dow and S&P 500 as it trades below its 200-day average, though above its 50-day average. A break above last Monday’s high will be a significant technical hurdle in clearing a lower base formation.

Volume indications this past week’s two days of distribution in a row clashes with the prior week’s accumulation. With summer over, we are seeing an increase in volume with no clear edge intact. NO BIAS.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The top 10 industry groups from the 6 month RS screen are:

1. MEAT PRODUCTS
2. ASSET MANAGEMENT
3. CATV SYSTEMS
4. PERSONAL SERVICES
5. DRUG RELATED PRODUCTS
6. BROADCASTING - TV
7. PACKAGING CONTAINERS
8. LODGING
9. HOSPITALS
10. OIL GAS PIPELINES

What Was Important About Last Week

STOCKS:

• National Semiconductor (NSM) reported Q1 earnings of $0.35 per share, $0.03 better than the Reuters Estimates consensus of $0.32. Revenues rose 9.6% year/year to $541.4 mln vs the $538.3 mln consensus. Co expects Q2 revs to decline 2-5%, which equates to $514-531 mln vs $553.29 mln Reuters consensus.
• Hovnanian Enterprises (HOV) reported Q3 earnings of $1.15 per share, $0.05 better than the Reuters Estimates consensus of $1.10. Revenues rose 18.1% year/year to $1.55 bln vs the $1.47 bln consensus. Co issued downside guidance for Q4, with EPS of $1.05-1.80 vs. $1.26 consensus. Co issued in-line guidance for FY06. It sees EPS of reaffirms $5.00-5.75 vs. $5.16 consensus.
• Shuffle Master(SHFL) reported Q3 earnings of $0.19 per share, excluding $0.07 acquisition expense and $0.08 intellectual property gain, which may not be comparable to the Reuters Estimates consensus of $0.25. Revenues rose 49.1% year/year to $40.7 mln vs the $45.8 mln consensus. Co issued upside guidance for FY06, sees EPS of $0.97-1.00 vs. $0.92 consensus.
• Palm Inc. (PALM) said it expects revenue to be in the range of $354-356 mln in Q1, compared with its earlier guidance of $380-385 mln provided June 29. The Reuters Estimates consensus is $383 mln. The revenue shortfall was primarily due to lower Treo volumes in carrier retail channels. Earnings per diluted share are expected to be $0.13-0.14 on a GAAP basis and $0.18-0.19 on a non-GAAP basis, in line with the company's previous guidance.

ECONOMY:

• U.S. consumer credit rose $5.54 billion in July
• The number of U.S. workers applying for initial jobless benefits fell by a steeper-than-expected 9,000 last week to the lowest level in more than a month.
• Inventories at U.S. wholesalers rose by a slightly larger-than-expected 0.8 percent in July on bigger stockpiles of autos and electrical equipment.

What We’re Looking For This Week

Key earnings releases:

• MONDAY: none
• TUESDAY: Best Buy Co., Inc. (BBY), Goldman Sachs (GS).
• WEDNESDAY: Lehman Brothers Holdings Inc. (LEH), Xilinx, Inc. (XLNX).
• THURSDAY: Adobe Systems (ADBE), Bear Stearns (BSC), Pier 1 Imports, Inc. (PIR),
• FRIDAY: none

On the economic front we have potential market movers with:

• MONDAY: none
• TUESDAY: Trade Balance
• WEDNESDAY: Crude Inventories, Treasury Budget,
• THURSDAY: Business Inventories, Export Prices ex-ag., Import Prices ex-oil, Initial Claims, Retail Sales, Retail Sales ex-auto, Business Inventories
• FRIDAY: Core CPI, CPI, NY Empire State Index, Capacity Utilization, Industrial Production, Mich Sentiment-Prel.

The Following Sections Are On Our Home Site:

• The Growth Stock Landscape
• What We Like - What We Have
• This Week's Scans: • SETUPS • BREAKOUTS • BASE BUILDING • SHORTS

This Week's Word On Discipline:

“Discipline - Success doesn't just happen. You have to be intentional about it, and that takes discipline.” - John Maxwell