MLR - PMP 10/4/13

Published : October 4 2013 at 9:03 ET

Major averages were down yesterday on higher volume. The S&P 500 is now a hair under its 50-day moving average. The risk-on small cap Russell 2000 Index fell on higher volume but is less than 2% off its high, having finished with a midbar close. The market has two forms of support. The first takes the form of quantitative easing. The second takes the form of belief that the shutdown will end soon as it always has, and that the debt ceiling will be raised also as it always has been, otherwise, the implications are dire.

The Treasury Department said Thursday that If Congress does not raise the debt limit and the United States were forced to default on its obligations, this could lead to a "catastrophic" effect not just on financial markets but on the economy that could echo the events of 2008 or worse. A Treasury official said the only way out of this crisis is for Congress to act. Perhaps this is the sort of pressure needed to get to a quick resolution between the House and the Senate.

Later, House Speaker John Boehner has told colleagues he's determined to prevent a federal default and is willing to pass a bill raising the debt limit. Boehner indicated he is willing to violate the so-called Hastert rule if necessary to accomplish this. Markets found their intraday bottom on the news, but still finished in the lower half of their trading range. As always, keep stops tight in this environment. Fear can cause markets to have short but sharp drops before they find their footing.

US Silica Holdings (SLCA) had a buyable gap up yesterday. Even given the weakness in the market, it was able to maintain its gap up. We reported on SLCA just recently after it had several pocket pivots in its pattern. Yesterday's gap-up move occurred from a position where the stock had already rallied for two days, so it lacked upside thrust, particularly with the general market in a weakened state.

Tesla Motors (TSLA) had a midbar close. If you used a violation of the 10-day moving average, you would have sold. For those of you trading around a core position, you may have elected to hold that core position despite the violation of the 10-day moving average. (NTES) traded enough volume for a pocket pivot. Earnings and sales have accelerated, group rank 16, pretax margin 52.7%, ROE 25.1%. NTES has formed a constructive sideways base over the last several weeks.

A number of leaders were hit hard yesterday on heavy volume, including stocks like Trulia (TRLA), YY, Inc. (YY), (AMZN), Biogen Idec (BIIB), Alliance Fiber Optic (AFOP), Netqin Mobile (NQ), and Soufun (SFUN). Should this action among leading stocks continue to broaden, a full-blown correction could ensue. Again, investors should stick to their stops and have a clear idea of where their exit points are.

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