MLR - PMP 10/22/14

Published : October 22 2014 at 8:10 ET

Major averages continued their hard bounce yesterday on higher volume. Both the S&P 500 and NASDAQ Composite had a fifth-day follow through (first day of count was a huge volume reversal day with close in upper half so even though it closed lower than the prior day, it still counts) and are firmly above their respective 200-day moving averages. The MDM went to a buy signal shortly after the opening bell on Oct 20, giving members a jump on the last two day's strong action.

That said, markets have come straight up off the bottom so may be due for a pullback for a few reasons. First and foremost, despite yesterday's follow through day, when major averages come up straight off the bottom back to around the midpoint of the correction, a pullback of some magnitude ensues. The depth and length of the pullback will depend on QE3 ending this month, the market's hope that the Fed would extend QE3, and whether QE# may have a longer stay around the world as the ECB is looking to launch more QE in January 2015.

Chinese online mega-retailer Alibaba (BABA) had a pocket pivot. IPO pocket pivots can work well but can undergo higher than normal volatility as is standard with IPOs. The price/volume looks relatively constructive on a weekly chart. Pretax margin 58.2%, ROE 112.1%.

Medical research equipment maker Illumina (ILMN) had a buyable gap up after a strong earnings report. Earnings and sales are accelerating, pretax margin 25.1%, group rank 50.

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