Step Right Up

Traders,

Everyone's a winner, bargains galore

That's right, you too can be the proud owner

Of the quality goes in before the name goes on

-- Tom Waits, "Step Right Up"

Our current position:

BUYERS' EDGE INTACT

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:

End of the quarter buying from portfolio managers may be attributed to recent strength, but the reality is we’re in a well supported market for longs.

This week we’re waiting on Employment Data Friday. And in coming weeks we we'll flooded with Earnings Reports from companies.

Employment Data and Corporate Earnings are always threats to price trends.

Forecasts for third quarter operating earnings for the S&P 500 are for a healthy 14% gain. With an absence of warnings from companies, there is no reason to believe news will be in line with expectations.

The market climate remains the same with Big Cap and Consumer Staple issues better bid for than Small Cap and Consumer Cyclical issues.

Bearish divergence in the Advance/Decline Line will be a forewarning of weakness unless corrected.

Where weakness in Technology and the Semiconductor Index continues to weigh on bullish enthusiasm, strength in Banks and Telecommunications is encouraging.

We have seen the best opportunities in Healthcare, Drugs and Biotech.

At this point we will remain bullish until we have reason to believe otherwise.

Technically speaking:

The Dow Industrial Average ($INDU), 1.5 %, remains trend up, just off an all time high.

The S&P 500 ($SPX), 1.6 %, also remains trend up.

Nasdaq ($COMPQ), 1.8 %, is trend up.

Russell 2000 ($RUT), 1.0 %, continues to consolidate in a lower base.

Volume indications continue to weigh to the Bulls favor, though heavy distribution on the Russell 2K was put in Friday.

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. PERSONAL SERVICES
3. LONG-TERM CARE FACILIT
4. HOSPITALS
5. PACKAGING CONTAINERS
6. DRUG RELATED PRODUCTS
7. CATV SYSTEMS
8. DISCOUNT VARIETY STORE
9. DEPARTMENT STORES
10. CHEMICALS-MAJOR DIVERS

What Was Important About Last Week

STOCKS:

• Red Hat (RHAT) reported Q2 earnings of $0.11 per share, excluding non-recurring items, in line with the Reuters Estimates consensus of $0.11.
• Paychex (PAYX) reported Q1 earnings of $0.35 per share, $0.01 better than the Reuters Estimates consensus of $0.34.
• Dress Barn (DBRN) reported Q4 earnings of $0.35 per share, $0.04 better than the Reuters Estimates consensus of $0.31.
• PMC-Sierra (PMCS) said it now expects Q3 revs to be in the range of $114-$116 mln (consensus $123.8 mln), down from its previous outlook announced on the July 20 of $122-$124 mln.

ECONOMY:

• The Chicago Purchasing Managers' Index (PMI) jumped to 62.1 in September, the highest level since July 2005. The Chicago PMI has averaged 59.1 in the last 12-months, well above the 30-year average of 54.7.
• Personal income increased 0.3% in August, after a 0.5% gain in July. Personal income is up 9.4% in the past year. Wages and salaries increased 0.1% last month, and are 7.7% higher than a year ago.
• Existing home sales fell a less-than-expected 0.5% in August to 6.30 million units at an annual rate. This is the lowest level since January 2004. Existing home sales are down 12.6% in the past 12 months.
• The median sales price of an existing home was $225,000 in August, 1.7% lower than a year ago. This is the first YOY decline since 1995.
• New single-family home sales jumped 4.1% in August to 1.050 million units versus 1.009 million units in July (originally 1.072 million). Consensus had expected sales to be 1.040 million.
• The median price of a new home rose to a non-seasonally adjusted $237,000 in August, but was 1.3% lower than a year ago.
• At the current sales pace, the supply of new homes fell to 6.6 months in August versus 7.0 months in July. From 1970-2000 the inventory of new homes averaged 6.4 months.
• New orders for durable goods unexpectedly fell 0.5% in August after a downwardly revised 2.7% decline in July (originally -2.5%). New orders are up just 3.8% in the past year.
• Transportation orders rose 3.7% in August, in large part due to a 4.4% increase in motor vehicle and parts orders. Excluding transportation, new orders fell 2.0% in August and July's data was downwardly revised to show no gain (originally +0.5%). New orders excluding transportation are up 5.8% in the past year.
• Shipments of durable goods jumped 1.9% last month and are up 6.9% in the past year. Shipments of non-defense capital goods, ex aircraft (a proxy for business CAPEX) rose 0.3% in August, and are up an annualized 6.3% thus far in Q3 versus the average level of Q2.

What We’re Looking For This Week

Key earnings releases:

• MONDAY: none
• TUESDAY: Pepsi Bottling Group (PBG)
• WEDNESDAY: Immucor (BLUD)
• THURSDAY: Constellation Brands, Inc. (STZ), Marriott International (MAR), Vail Resorts (MTN)
• FRIDAY: none

On the economic front we have potential market movers with:

• MONDAY: Construction Spending, ISM Index,
• TUESDAY: Auto Sales, Truck Sales,
• WEDNESDAY: Factory Orders, ISM Services, Crude Inventories
• THURSDAY: Initial Claims
• FRIDAY: Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Consumer Credit

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:

“A colt is worth little if it does not break its halter.”

Resolve and History

Traders,

And it's a hard, it's a hard, it's a hard, it's a hard,

It's a hard rain's a-gonna fall.

-- Bob Dylan “A Hard Rain’s A-Gonna Fall”

Our current position:

BUYERS' EDGE INTACT

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:

With one week left in one of Wall Street’s historically weakest months the market has proven itself a sturdy bull.

As price action pulls back from recent highs the Bulls’ resolve continues to be tested.

Economic chatter bounces from the notions of hard landing, soft landing or continued growth. We at the Growth Stock Report have no idea.

The charts are telling us the market is in an institutionally sponsored uptrend. Until we see evidence otherwise – we’re waving our Green Flag.

The real strength is in Big-caps and Consumer Staples.

Key to further success, Banks are on the verge of a 6-month base breakout.

And surprisingly, Software and Telecoms have hit new highs.

While Tech as a group is unarguably a drag on broad market action, Software and Telecom represent strong votes of confidence for the group.

Healthcare and Drugs have also hit new highs, and represent recent Longs in our portfolio.

REITs are also hot.

Downside weakness is in Commodities, which have been worked over handily with sellers - and Energy, as it tests a key support level.

Technically speaking:

The Dow Industrial Average ($INDU), -0.5 %, holds an up-trend as it pulls back from yearly highs.

The S&P 500 ($SPX), -0.4 %, also holds an up-trend as it pulls back from yearly highs.

Nasdaq ($COMPQ), -0.7 %, closed on its 200-day moving average, which is positioned above its 50-day average as evidence of a weaker trend in comparison to its Dow and S&P counterparts.

Russell 2000 ($RUT), -1.5 %, also closed on its 200-day moving average, which is positioned above its 50-day average as evidence of a weaker trend in comparison to its Dow and S&P counterparts.

Volume indications are stacked to the buyer’s advantage.

Key chart action for the week:

Charts courtesy of Stockcharts.com

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

1. LONG-TERM CARE FACILIT
2. MEAT PRODUCTS
3. DRUG RELATED PRODUCTS
4. PERSONAL SERVICES
5. CATV SYSTEMS
6. PACKAGING CONTAINERS
7. HOSPITALS
8. DISCOUNT VARIETY STORE
9. BROADCASTING - TV
10. TOYS GAMES

What Was Important About Last Week

STOCKS:

• NY Times (NYT) sees Q3 EPS of $0.11-0.15, ex items, vs. $0.18 consensus. The third-quarter range excludes an estimated $0.01-0.02 per share for staff reduction costs, and an estimated $0.02-0.03 per share from a loss on the co's sale of its investment in the Discovery Times Channel, which the co has agreed to sell for $100 mln.
• Palm (PALM) reported Q1 (Aug) earnings of $0.21 per share, $0.03 better than the Reuters Estimates consensus of $0.18. Revenues rose 4.0% year/year to $355.8 mln vs. the $354.6 mln consensus; co preannounced revenues of $354-356 mln. Co issued downside guidance for Q2, sees EPS of $0.20-0.23 (consensus $0.27) on revenues of $430-450 mln (consensus $470.02 mln).
• Bed Bath & Beyond (BBBY) reported Q2 (Aug) earnings of $0.51 per share, in line with the Reuters Estimates consensus of $0.51. Revenues rose 12.3% year/year to $1.61 bln vs. the $1.6 bln consensus.

ECONOMY:

• Housing starts fell 6.0% in August to 1.665 million units at an annual rate. Single family starts declined 5.9% while multi-unit starts slid 6.7%.
• New building permits declined 2.3% in August to an annualized 1.722 million units - the lowest level in over four years.
• Housing completions fell 3.2% to 1.868 million units in August.
• The producer price index for finished goods (PPI) rose a less-than-expected 0.1% in August after an identical gain in July. Finished good prices are up 3.7% in the past year. Excluding food and energy, the "core" PPI fell 0.4% last month and the YOY gain retreated to 0.9%. This is the slowest YOY gain since the 12-months ending in March 2004.

What We’re Looking For This Week

Key earnings releases:

• MONDAY: Walgreen (WAG)
• TUESDAY: Dress Barn (DBRN), Paychex (PAYX), Red Hat, Inc. (RHAT)
• WEDNESDAY: none
• THURSDAY: none
• FRIDAY: none

On the economic front we have potential market movers with:

• MONDAY: Existing Home Sales
• TUESDAY: Consumer Confidence,
• WEDNESDAY: Durable Orders, New Home Sales, Crude Inventories,
• THURSDAY: Chain Deflator-Final, GDP-Final, Initial Claims, Help-Wanted Index
• FRIDAY: Personal Income, Personal Spending, Mich Sentiment-Rev., Chicago PMI

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 is the soul of an army. It makes small numbers formidable; procures success to the weak, and esteem to all.”– George Washington

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