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Market Lab Report - Pre-Market Pulse for Wednesday, May 16, 2018

Major indexes sold off yesterday on higher volume. The Dow Jones Industrials Index finally saw its eight-day upside streak end, while the S&P 500 and NASDAQ Composite Indexes had been up 7 out of 8 days each. The gap-down move on higher volume was bearish, but the major indexes all held well above their 50-dmas by the close, although could test their 50-dmas in the coming days. The small-cap Russell 2000 Index was down only fractionally, closing roughly unchanged as it outperformed the rest of the market.

Higher interest rates were blamed for the sell-off as the 10-year Treasury Note yield closed at a new four-year high, ending the day at 3.08%, its highest close since July 2008. Short-term rates in general moved higher, with the 2-Year Treasury Note year moving to its highest close since 2008 at 2.58%. 

This is reflective of the Federal Reserve planning more rate hikes into the end of 2018. Higher rates and the ongoing quantitative tightening (QT) have kept the US stock market in a chop zone all year as the market has yet to have sustainable moves in either direction. In such an environment, the Wyckoff undercut & rally patterns have proven to be the more profitable in terms of small risk and relatively quick reward.

Futures are roughly flat at the time of this writing. 

Focus List Notes:
AMZN pulled into its 20-dema and held - this can be considered a critical area of support for the stock. It sold off on news that Seattle would impose a "head tax" on the company to help pay for its homeless problem.
BZUN busted its 50-dma. The stock has been trapped in a range for the past two months. Earnings are expected on Thursday before the open.
FTNT held near-term support at its 10-dma.
NFLX also held near-term support at its 10-dma.
NVDA broke hard to the downside but found intraday support at its 20-dema. The 20-dema can be viewed as criticial near-term support for the stock, since a breach of the line would be the first clue of an impending late-stage base-failure.
SQ pulled back and held support at its 10-dma.
In general, constructive pullbacks to the 10-dma or 20-dema in leading stocks can provide lower-risk entry opportunities, as long as one uses the nearest moving average as a tight selling guide. If the general market is able to find its feet, then stock may very well be able to hold and rally off near-term support levels.


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