MLR - PMP 10/25/13

Published : October 25 2013 at 9:38 ET

The major markete averages continued their uptrend on higher volume. Two tech juggernauts, Microsoft (MSFT) and Amazon (AMZN) both gapped higher after-hours yesterday on strong earnings reports, sending the NASDAQ futures up an additional 0.7% at that time.

The U.S. dollar is testing 2-year lows as it approaches 78. With quantitative easing on full blast from major central banks, commodities including precious metals may be putting in bottoms. With the U.S. credit rating already downgraded once by Standard & Poors and potentially vulnerable to a second downgrade, China continues to reduce its exposure to U.S. Treasurys by buying hard assets including gold. With last week's passage of the Default Prevention Act which gives the President authority to raise the debt-ceiling unless Congress disapproves by a 2/3rds majority vote, essentially moving such authority from Congress to the President, the trend towards more debt and more money-printing is well intact.

Nq Mobile (NQ) lost nearly two-thirds of its value in high volume trade as Muddy Waters, a research, initiated coverage of NQ Mobile with a strong sell rating. Carson Waters, the founder of Muddy Waters, gained fame for his short-selling calls after regulators halted trading in four of the first five companies he targeted starting in June 2010. “We believe it is a zero,” Block, wrote in an e-mailed report today on NQ Mobile. “At least 72% of NQ’s purported 2012 China security revenue is fictitious.”

This underscores how smaller Chinese companies can carry greater risk as their books are more susceptible to fraud. The intraday action on NQ also stresses the reason why it is important to keep stops on stocks. If you cant keep a close eye on your stocks, it is best to put sell stops on your positions. We bring this up because the action in NQ yesterday was personal for us. We had taken a position in the stock at 20.09 on the recent pullback down to the 50-day moving average, but early in the day yesterday the stock triggered our trailing stop and we exited at 22.48, locking in a profit in excess of 11% on the position. Slower investors who do not heed stops, much less set stops, on their positions suffered tremendously, and NQ reminds us all that there is risk in the stock market at all times.

Earnings season has brought several gap-up move in stocks, but aside from these there have been few actionable buy signals. As well, some gap-ups have not produced much in the way of further gains, such as Netflix (NFLX). The market remains in an extended position, and while the indexes remain in an uptrend, investors should still maintain patience and choose their shots carefully.

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