MLR - PMP 2/3/14

Published : February 3 2014 at 9:04 ET

Major averages fell again on higher volume. The number of distribution days has accelerated as well. Should the S&P 500 break down on volume through its current consolidation which would be about 0.7% from its Friday's close, the Market Direction Model would most likely switch out of its buy signal as this would represent a change in price/volume action since January 2013.

Futures are roughly flat this morning following a -2% drop in Japanese stocks overnight while China's Purchasing Manufacturer's Index fell for the sixth straight month.

Finisar (FNSR) had a pocket pivot on Friday as it forms a three-week handle within an overall 15-week cup-with-handle formation. Earnings and sales are strongly accelerating. FNSR makes transmitters and receivers that connect LAN and WAN networks.

Methanex (MEOH) gapped up on strong earnings Thursday, then had a constructive pullback on Friday. At the time the report was sent out, and assuming we used a 1-2% cushion below the low of the gap up day, the risk in putting on this trade at the time the report was sent was about 2-3%. Group rank 69, ROE 32%, accelerating earnings and sales. In sizing up a trade, it is always important to know your potential downside.

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