MLR - PMP 12/12/13

Published : December 12 2013 at 9:05 ET

Major averages headed lower yesterday on higher volume. Leading stocks have had a tough time trending higher so with the growing number of distribution days, it would seem a cash signal for the Market Direction Model is not far off. That said, 2013 has been rife with other similar situations when the general market falls then quickly finds its footing, limiting its drop to typically 5% or less. As long as quantitative easing continues and major averages show an overall uptrend, the uptrend speaks for itself. That said, keep your stops tight on your stocks as leaders tend to fall substantially further than minor pullbacks in major indices. Overnight Asian and European indexes are down on fears of QE tapering, but we have to question whether the Fed really can engage in tapering. Tapering will likely result in spiking interest rates, something that would be disastrous for interest on the U.S.' debt going forward. With the latest "budget agreement" barely creating a tiny nick in profligate government spending, the need to issue debt on a constant basis is not going to abate. Thus we are quite interested in seeing just what the Fed does next week given the current talk of an impending taper.

Facebook (FB) is gapping up after the announcement that it will be added to the S&P 500. This sort of action is initially bullish but can persist especially given constructive price/volume action leading up to this buyable gap up. FB most recently was rounding out its base but the last time we reported on the stock after a mini-gap to the upside last week the stock failed at the 50-day moving average and reversed. Two days ago, FB was able to close above its 50-day moving average and yesterday pulled back to the line. So far FB has not issued any bona fide buy points in the lower parts of this current base, so it remains to be seen whether being added to the S&P 100 and 500 Indexes will be enough to drive a new rally phase in the stock, particularly given the current state of the general market.

Lululemon Athletica (LULU) is gapping down this morning as it makes a break for the neckline of a massive head and shoulders "complex" that extends back to September 2012 down at around the 60 price level. This morning's gap-down takes the stock down through the neckline of a shorter head and shoulders formation that actually makes up the right shoulders of the longer-term head and shoulders complex extending back to 2012. This shorter H&S formation has a neckline at the 65-66 price level, thus any rallies back up into the short-term neckline could be shortable. We currently have a position in the stock.rohibited. The information contained herein is not, and should not be construed as an offer to sell or the solicitation of an offer to buy any securities. 

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