MLR - PMP 1/2/14

Published : January 2 2014 at 9:19 ET

Major averages inched higher as they've been doing for much of the year, but the journey of a thousand miles begins with but a single step, with the averages making a stellar show this year with quantitative easing at the forefront, helping to prevent corrections of no more than roughly 5% for all of 2013. While the uptrend looks simple, buying breakouts, pocket pivots, then pyramiding them, has been challenging to say the least. For every TSLA, there have been scores of names that didnt move as they should, often stalling or hitting sell stops. Of course, one TSLA, handled right, more than offset all the small losses. Our pocket pivot and buyable gap up reports managed to capture the right buy points in some names, and as for names that didn't work, obeying sell stops was key.

As for market timing models in general, the major averages often sold off to push cash or sell signals into play, only to find their footing just after, making it tough to outperform the majors as quantitative easing has been on full bore since the Fed's proclamation on January 2 of this year which was then followed by other central banks such as Bank of Japan, Bank of Australia, ECB, and Bank of England. The trend following wizards are looking to yet another down year, an unprecedented situation:

The Market Direction Model, accounting for increasing levels of QE, has managed to stayed away from sell signals since August of this year while staying longer on its buy signals which has helped it ride more of the market's uptrend. Nevertheless, 2013 has been the model's most challenging year in its long history of calling signals on the market. It has adjusted to the challenges as it is not black box but contextual to the very few and rare material changes that occur in the market every other blue moon. As long as the Fed maintains its unusually low rates for what they have said would most likely be an extended period of time, the uptrend stands a good chance of continuing.

Small biotech Repligen (RGEN) had a pocket pivot on Tuesday. Institutional sponsorship has increased 9 quarters in a row, earnings are accelerating strongly with the most recent quarter up 157%, group rank 31.

Organovo Holdings (ONVO), in strong follow-up action to last Thursday's subtle pocket pivot, launched higher as it broke out of a low-base formation on Friday as volume ballooned. We would expect the stock to hold this breakout on any pullbacks from here as it attempts to work its way up the right side of its formation.

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