MLR - PMP 4/22/14

Published : April 22 2014 at 8:44 ET

Major averages were yesterday up on lower volume. The put/call ratio spiked to nearly 2.0 on April 11 and this was followed by the NASDAQ Composite and Russell 2000 bouncing off of their respective 200-day moving averages two days later. The market has bounced since though on anemic volume, and the volume on April 17 which seemed healthy was exaggerated due to options expiration. Currently the market is in the midst of what is so far a five-day rally attempt on the S&P 500 and a four-day rally attempt on the NASDAQ. A follow-through is of course a possibility at this stage of the rally, but potential leadership has been relegated to oil-related names which have led the market during the correction throughout March and the beginning of April. The bottom line is that even in the event of a follow-through and a so-called resumption of the market's uptrend, few stocks are positioned in buyable set-ups.

Netflix (NFLX) announced earnings yesterday and the stock is gapping up this morning. NFLX is coming up from a position well below its 50-day moving average, and pre-open the stock is still below the 50-day line despite the big gap-up. It is possible that this earnings-related gap-up rally might only serve to form the right shoulder in a possible Head & Shoulders formation that is still in-process. Therefore we might look for a failure of this rally as a potential short-sale opportunity. If this turns out to be the case, we will likely send out a Short-Sale Set-up report, so members should keep an eye out for this. Given that a number of former leading stocks, such as AMZN, GOOG, PCLN, DATA, WDAY, FEYE, etc., have formed patterns that so far resemble 2/3rds of an H&S pattern, e.g., the left shoulder and the head, earnings-related rallies could turn out to be the events that help form the right shoulder and thus complete the H&S formation.

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