MLR - PMP 10/16/13

Published : October 16 2013 at 9:35 ET

The major averages fell on higher volume yesterday as no resolution was reached on the debt ceiling issue. On its face, the action constituted a distribution day. Talks continued late into the day but as of this morning no final, concrete resolution has been reached. Meanwhile, volatility continues to be the rule of the day.

On August 5, 2011, Standard & Poors downgraded the U.S.' credit rating for the first time in history and markets tanked. Speaking Tuesday, Senate Majority Leader Harry Reid said if a deal between the Senate and the House is not adequate, credit agencies could downgrade US debt "as soon as tonight" (last night) for the second time in history.

Standard & Poors disagreed, saying in an earlier statement that "In our opinion, the current impasse over the continuing resolution and the debt ceiling creates an atmosphere of uncertainty that could affect confidence, investment, and hiring in the U.S. However, as long as it is short-lived, we do not anticipate the impasse to lead to a change in the sovereign rating."

House Speaker John Boehner said House Republican leaders were working with members but there were "no decisions about what exactly we will do." House Republicans were reportedly planning to make changes to President Barack Obama's health law in their proposal.

Should this drag on longer than what S&P considers "short-lived", the more likely S&P and other ratings agencies may eventually downgrade the U.S.' credit rating. As always, we will continue to keep an eye on price/volume action of leading stocks and major indices for clues. Odds still favor a resolution to the budget impasse though perhaps at the eleventh hour. Currently, the Senate has "restarted" talks but ultimately any Senate resolution will have to pass the House as well, so it is not a solution in an of itself. Market volatility could continue to reign as the news flow out of Washington D.C. continues to shift.

IPO Noodles (NDLS) had a high volume reversal yesterday, something it has done previously. Its flawed base has been choppy containing some high volume down days. If you bought this one when it was up early on Tuesday's trade, you hopefully either already sold on the reversal or plan to sell. Expect further choppiness thus higher risk in this pattern.

Tesla Motors (TSLA) had a gap up yesterday on an analyst upgrade. That said, it closed at the low end of its range, though the general market did same. Also, volume levels were low, so what looked to be a buyable gap up could be considered a weak one at best. A bullish note: TSLA had recently pulled back to its 50-day moving average as did many other leading stocks but had more buy than sell volume which explains the mid-bar closes indicative of institutional support. That said, it is volatile and has made massive gains not unlike other super-stocks over the years. However, keep in mind it could easily form a deeper, longer base at some point, then launch again. If you bought any yesterday, a tight stop would be if it undercuts yesterday's low by 1-2%.

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