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Market Lab Report - Premarket Pulse 12/28/16

Published : December 28 2016 at 8:17 ET

Major averages rose yesterday on mixed, well below average volume. The NASDAQ Composite broke out to new highs, then sold off later in the day closing mid-bar, but still managed to close at new highs. The light trading volumes are not unusual for this time of year. With futures up this morning, the Dow may finally make it to the elusive 20,000 level, although we would remind members that this is just a number, and has no significance as a predictor. In fact, back in 1999, as soon as the Dow cleared the 10,000 level it immediately corrected - 4.6%.

How will the market trade in the New Year? The pink elephant in the room begs the question of how the QE bubble deflates. If the bubble can at all be deflated in a gentle manner, the answer would lie in the tech space. Certain areas are growing exponentially that will have a material impact such as cryptotechnology, AI, VR (virtual reality), DACs (decentralized autonomous corporations) and so forth.

That said, while the growth of certain tech sectors has been fast and furious, such growth rarely correlates 1:1 with the stock market. Many such sectors are still embryonic thus profits are often years off. Further, various areas within tech are on different parts of the growth curve, thus advancements in technology are overall not uniform. This suggests why such growth is often an inefficient metric in terms of making predictions in stock market direction. One only has to remember the bursting of the big dot-com bubble to see how growth in technology stocks can be erratic. Such volatility has included serious bear markets.

This observation implies the QE bubble will burst at some point. Never before has so much debt been generated without serious consequences to the stock market. The question then is when. Follow the price/volume in your stocks. The price/volume in leading stocks today can be the harbinger of tomorrow's action.


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