MLR - PMP 7/29/14

Published : July 29 2014 at 8:30 ET

Major averages stumbled, stabilized, then finished near breakeven except for the Russell 2000 which has been showing more pronounced weakness compared to the other major averages. Perhaps this is an ill omen, much as the Russell 2000 showed pronounced weakness in late 2007 which quickly led to the beginning of the bear market and ended in disaster. That said, QE was not part of the equation back then, and has shown itself to be quite the formidable contender to bears. Nevertheless, it is important not to get complacent since market pullbacks can be profitable shorting opportunities as we have fully discussed in our webinars.

Electric car maker Tesla Motors (TSLA) had a pocket pivot but closed near breakeven in the lower half of its trading range, thus is an example of a weak pocket pivot when taking into context that the market, after a bout of initial weakness, retraced its losses and remained fairly strong for the rest of the day, though volume was lower. One strategy would be to buy a position should it clear Monday's high. A more conservative strategy would be to wait for a stronger pocket pivot before buying. However, the issue of buying into TSLA is further complicated by the fact that the company is expected to announce earnings next week, and one would have to determine how large a position in TSLA one would want to hold into earnings.

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