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A Deep Post-Decline Analysis, Part 1

Second-best looking? The cyclicals, which were pounded hard last week over worries about China's newfound weakness (liquidity being withdrawn) as well as Europe's endless woes, including another dip down, this time in France.

Here the two most intriguing charts are from Manitowoc (MTW), which many know I believe will be split into two companies, food service and cranes, and Terex (TEX), the crane company that reported a subpar quarter. These are signs of commercial real estate progress, in keeping with the recent spike in architectural billings, an important indicator of future growth, and they buttress the beauty of the regional bank charts.

The other cyclicals that are strongest jive with the return of the truck business as a driver for industrial production after multiple months, such as Paccar (PCAR), Eaton (ETN), Parker-Hannifin (PH), Nucor (NUE) (steel used in trucks and commercial real estate as well as cars) and Cummins, itself the trucking king. We always want to see these stocks go higher because they portend a healthy commercial transport sector down the road.

Housing got crushed this week, something that was predictable because of how overextended it was going in to the Toll Brothers (TOL) report. I have railed several times already about how I didn't see the Toll report as being consequential at all, other than it showing tremendous strength. I think the market agrees because former darlings Sherwin-Williams (SHW), Stanley Works (SWK), Weyerhaeuser (WY) (an Action Alerts PLUS name) Newell-Rubbermaid (NWL) and Whirlpool (WHR) all seem tempting to me, with pullbacks precisely to where they are most compelling. I think this group, which reported among the best quarters, is still in the early innings because we are lucky if we build a million homes this year, which remains well below average.

Tech's also making a serious comeback here, one that has to be noted if only because we are all so transfixed by Apple (AAPL), and I have tried and tried hard to get away from that fixation as it has become a hedge fund/media parlor game.

Of these the most beautiful are two stocks that reported strong earnings and have fallen back on trend lines I believe will hold are Cisco (CSCO) and Oracle (ORCL). If you recall, Cisco truly had an excellent quarter and if CEO John Chambers had left it at that, instead of giving cautious commentary, I believe the stock would be headed back to $24.

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