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[setravis]

The markets staged an impressive rally the past few days after threatening to continue their recent slide earlier in the week. The general indexes were looking vulnerable by late Tuesday as they headed for a retest of last week's lows, but a sharp gap higher on Wednesday caught bears flat footed and ended up leading to a three-day surge. The markets ended the week sharply higher and cemented the recent lows as support. They remain in a trading range, and could be on their way for a retest of the July highs.


Bottom Line...
This week's price action was very constructive as it showed aggressive buying near support levels. While this doesn't guarantee a bottom is in, it is the first step in a possible bottoming process. The markets have quickly gotten ahead of themselves, and while they may ride the current momentum a little higher, the more likely scenario is a retracement of at least a portion of this week's rally. The markets are still within a much broader trading range, and it is still too early to know if this is a larger topping process or if a new base is being formed. The levels to watch are pretty clear with this week's bounce clearly showing where support is, and the July highs marking resistance. With summer practically over, the next few weeks should usher in an increase in volume and provide more clues as to the next move in the markets. Either way, it is sure looking like there could be a strong move in autumn.

[setravis]

View by Fundamentals...
Healthy Profit Margin .Strong profit margin is a hallmark of any great stock. A profit margin of 50% means the company is generating 50 cents of profit for each $1 of sales.
Stocks with the high annual profit margin, sorted by profit margin, secondary sort by latest quarter EPS % change; price >= $15, average daily volume >= 400,000 shares, within 30% of a 52-week high.

BVN
CHKP
EPB
ICON
CELG

[setravis]

Markets Update
U.S. Stocks Nab Third Weekly Gain

Stocks ended mixed Friday, but notched their third straight weekly gain. Techs outshined on the session, thanks to upbeat earnings from Oracle (ORCL) and Research In Motion (RIMM). Both big-caps reported late Thursday.

The Nasdaq stretched its win streak to eight sessions, rising 0.5%. That's the longest hot streak since a 12-session marathon in July 2009.

Meanwhile, the S&P 500 rose 0.1%. But it pared gains after hitting resistance at the 1131 level. Meanwhile, the Dow also gained 0.1%, while the NYSE composite fell 0.2%. Turnover surged across the board due to the expiration of options and futures.

For the week, the Nasdaq rose 3.3% and NYSE composite 1.2%. The Dow and S&P 500 gained 1.4% each.

Thinly traded 51job (JOBS) rocketed 13% to a five-year high. The stock followed up after clearing a short consolidation Thursday. China-based 51job is a provider of human resources services. It has delivered three straight quarters of triple-digit earnings growth.

IPG Photonic (IPGP) rallied 4% and touched a fresh three-year high in fast trade. The stock cleared a 19.30 buy point on Aug. 3 on a cup base, and has gained 23%. IPG makes lasers for materials processing, telecom and medical applications. Analysts see its full-year earnings skyrocketing 542%. The stock is No. 53 in this week's IBD 100.

Radware (RDWR) gained 5% in nearly triple its average volume. The Israeli networking firm has gained 34% this week on reports that it may be a takeover target. Hewlett-Packard (HPQ) and IBM (IBM) have been named as potential suitors. Radware has shot up more than 50% from a 24.10 buy point in a cup-with-handle base cleared Aug. 24.

Energy XXI (EXXI) reversed early losses and rose 3% in nearly double its average volume. The stock cleared a 21.45 buy point in a cup-with-handle base. Earlier this month, the oil and gas producer reported fiscal Q4 earnings of 20 cents a share, smashing views of a nickel. Analysts see its full-year earnings surging 170%.

On the downside, Sina (SINA) reversed from a two-year high and dropped 5% in more than three times normal volume. Despite the downturn, the stock still sits 4% past a 46.02 buy point in a cup-with-handle base.

The National Association of Home Builder's housing market index will be out Monday along with earnings from homebuilder Lennar (LEN).

[setravis]

Markets Update
U.S. Stocks Fall On Economic Concerns

Economic worries sent stocks lower Wednesday. But equities ended off their worst levels of the session. Investors bought bonds on hopes of quantitative easing after Tuesday's Fed statement hinted at additional stimulus measures. Gold hit a fresh record high.

The Nasdaq settled 0.6% lower after being down more than 1% at its intraday bottom. Adobe Systems (ADBE) tumbled 19% after giving a soft sales outlook late Tuesday. But Apple (AAPL), Amazon.com (AMZN) and Google (GOOG) scored gains.

Meanwhile, the NYSE composite and S&P 500 fell 0.5% each and the Dow edged down 0.2%. Trade fell on the Nasdaq and NYSE.

Only a handful of leaders declined in heavy trading.

STR Holdings (STRI) fell 6% in nearly twice its average trade. The stock closed just above its recently formed 200-day moving average. STR, which makes encapsulants used in solar modules, went public in November 2009. Wednesday marked STR's fourth straight loss in heavy volume. The stock is now 28% off its 52-week high.

Aruba Networks (ARUN) shed 6% in brisk trading, wiping out Tuesday's move. But the stock remains 13% past an 18.51 buy point from a square box.

Riverbed Technology (RVBD) reversed early mild gains and fell 5% in heavy volume, its biggest one-day drop in almost three months. The stock, which had been in a rebound off its 10-week moving average, nearly hit a three-year high Monday.

Lululemon Athletica (LULU) fell 4% as its recent breakout continued to fizzle. The stock closed below a 43.47 buy point from a double-bottom base. The Retail-Apparel/Shoes/Accessories industry group slipped to 143rd from 113th among 197 IBD industry groups over the past week. It sports a 99 Earnings Per Share Rating.

On the upside, Netflix (NFLX) gapped up and rallied nearly 7% to a fresh record high. The entertainment firm expanded its video streaming service into Canada. It was No. 1 in Monday's IBD 100.

After the close, Red Hat (RHT) gained 3% after reporting fiscal Q2 earnings and sales above views. The stock fell 4% in heavy trading during Wednesday's regular session but was still 13% above a 32.62 buy point.

Initial jobless claims and leading economic indicators will be out Thursday. Nike (NKE) and Tibco Software (TIBX) will report earnings.

[setravis]

Flagging Restaurant Stocks Look Less Than Appetizing...

Restaurant stocks have been one of the strongest groups over the past year as stocks like McDonald's (NYSE:MCD), Yum! Brands (NYSE:YUM) and Chipotle Mexican Grill (NYSE:CMG) have moved to all-time highs. There was a real fear that many restaurant stocks would suffer through the recession and while many names are trading much lower, as a whole this sector has been trending higher for almost two years. But despite this group's strength, it doesn't really garner the same level of attention from the media that other market leaders receive.

Chipotle Mexican Grill (NYSE:CMG), for example, has proved to be a clear market leader. CMG had been in a consolidation through most of the summer, while the markets were threatening to break down. CMG then broke out of its base well ahead of the markets in September, and is now building a flag above its breakout area. Whether CMG can clear this flag now or not, it is clear that it is one of the strongest stocks in the market right now.

[setravis]

Flagging Restaurant Stocks Look Less Than Appetizing...

While many traders may be aware of CMG and its strength, other restaurant stocks like BJ's Restaurants (Nasdaq:BJRI) have also been performing well. While many of these are not already above their bases like CMG, they are building flags after clearing important resistance levels. BJRI has been building a base since April and recently cleared some resistance levels near $26. While the base for BJRI is not perfectly defined, there is a clear level of resistance just under $28. BJRI is currently flagging just under this level; a move above the flag could lead to a break above the entire base.

[setravis]

Flagging Restaurant Stocks Look Less Than Appetizing...

Cracker Barrel Old Country Store (Nasdaq:CBRL) is another restaurant stock building a flag just under key resistance levels. CBRL was trading in a well-defined channel over the past few months until recently breaking out of that range. It has begun to flag in the $50-$51 level. A breakout from the flag could lead to a break above the more important resistance level of $53.

[setravis]

Flagging Restaurant Stocks Look Less Than Appetizing...

Darden Restaurants (NYSE:DRI) also recently cleared resistance as it broke above the neckline of an inverse head and shoulders it has been building since May. DRI was able to clear pretty significant resistance around $44-$45 and is now flagging at that level. DRI's prior high was just above $48; a move above the flag should lead to at least a retest of this level.

[setravis]

Flagging Restaurant Stocks Look Less Than Appetizing...

The Bottom Line
Other stocks in this sector, such as DineEquity (NYSE: DIN) and Krispy Kreme Doughnuts (NYSE:KKD), are also showing similar flag patterns. Because institutions often accumulate a basket of stocks in a specific sector, traders should always be on alert when a pattern is found across multiple stocks. The bull flag is a bullish continuation pattern, and these stocks are all building this pattern after clearing important resistance levels. While not all flags are resolved to the upside, traders should be on high alert as this pattern often results in a sharp move once it is cleared.

Do you think these stocks can break out of their flags? 

[setravis]

Brewers Looking Bullish...

Commentary:
In running through a screen for stocks near all-time highs, one group that kept popping up was brewers. These stocks are technically already in a bull market and many are emerging from recent bases. Any stock that was able to overcome the declines they suffered during our most recent bear market deserves some respect. The brewers were hit along with the rest of the markets, but ultimately, many of these stocks surged past their prior bull market highs several months ago. After consolidating for the past few months, these stocks are gaining momentum again and are starting to hit new highs.

Companhia de Bebidas das Americas (NYSE:ABV) is a brewer that is hitting all-time highs. ABV has managed to rally almost $100 from its bear market lows in late 2008. It had been trading in a sideways range for the better part of a year until recently beginning to move higher. It cleared an important level near $100 in June and then broke past $110 in September. The $110 level in particular is an area to watch as a possible support area moving forward.

[setravis]

Brewers Looking Bullish...

Fomento Económico Mexicano, S.A.B de C.V (NYSE:FMX) is another brewer trading near all-time highs. FMX cleared its base in late July and has been steadily rising since then. It has been hugging its 20-day moving average for several weeks as it pushes higher. The $50 level is a very important level to monitor, as this was its prior bull market high in 2008. FMX failed its first test of this level late in 2009 and then needed a few weeks to clear it in 2010. It finally managed to break out this month, which could force the hands of some short sellers.

[setravis]

Brewers Looking Bullish...

Boston Beer (NYSE:SAM) is another brewer near all-time highs, although it has not yet broken out. However, SAM cleared a huge resistance level near $54-$55 back in April and after a very volatile May, it followed through with a $20 rally into June. It has since settled into a consolidation that is taking the shape of a descending triangle. A move above the $70 level would get my attention as it could set a higher high and clear the trendline marking the top of the triangle. (For more, see Analyzing Chart Patterns: Triangles.)

[setravis]

Brewers Looking Bullish...

While Anheuser-Busch Inbev SA Sponsor (NYSE:BUD) is also at all-time highs, it should be noted that it didn't start trading until after the financial crisis. However, after trading sideways since it began trading in September 2009 through July of this year, it finally broke out. It initially looked like BUD would fail its breakout after dipping back into its base in August, but it gapped higher in September and took off from there. It is currently extended after a second gap, but showing great relative strength to the markets. The $55 level is one area to watch for possible support on a pullback.

[setravis]

Bottom Line...

While it's likely that the general markets will need to take a breather soon after experiencing a pretty sharp one-month rally, the benefit of the doubt currently lies with the bulls. When you have an up trending market, it makes sense to look for the strongest stocks, and the brewers currently fit the bill. They have been in a bull market of their own and this trend will likely continue if the markets can continue to head higher. Even if the markets take a breather, these stocks have proved themselves over the past several weeks and may find support relatively nearby. It's likely to take a severe market correction to derail their current trends.

[setravis]

•Biotech Stocks: Drug stocks inch higher as SIGA gains...

Drug stocks inch higher as SIGA gains
BOSTON (MarketWatch) -- Drug stocks inched higher early Thursday as shares of SIGA Technologies gained for the second day.

SIGA /quotes/comstock/15*!siga/quotes/nls/siga (SIGA 13.23, +0.39, +3.04%)   shares were up 4% at $12.89 after soaring almost 50% on Wednesday on news that it an been awarded a potentially lucrative contract by the U.S. Department of Health and Human Services for its smallpox treatment.

The bio-defense firm stands to earn around $500 million from the contract, and up to $2.8 billion if all of the contract's options are exercised.

SIGA added that the contract will be officially awarded once it resolves questions regarding its small-business status with the Small Business Administration.

The NYSE Arca Pharmaceutical Index /quotes/comstock/10t!drg.x (DRG 317.16, +0.27, +0.09%)   and the NYSE Arca Biotechnology Index /quotes/comstock/10t!btk.x (BTK 1,177, +8.49, +0.73%)   were both nominally higher at 317.48 and 1174.74, respectively.