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Market Lab Report - Premarket Pulse 10/13/16

Major averages finished yesterday roughly midbar and flat on lower volume with all major averages now below their respective 50-day moving averages. As we discussed in last week's VoSI market webinar, the potential for a market sell-off was increasing at that time. This morning we see that come to full fruition as futures come off sharply before the open.

The Fed’s September meeting minutes showed support for an interest rate rise soon, yet at the same time implied a go-slow approach, confirming that policy makers have differing views. One analyst remarked that a “divided Fed is really bad for the market" as the market hates uncertainty.

Meanwhile, weak economic news out of China showed that China’s exports last month fell much more than expected, as global demand for goods from the world’s second-largest economy remained sluggish. This is reminiscent of economic troubles in China which were first reported in August 2015 which caused a correction in August then again in January 2016. “This has made investors a little nervous once again,” the analyst said. That’s after they had been “thinking that they may not have to worry about China anymore,” he added.

As we have advised keeping stops tight and taking profits in context with a stock's chart, a number of leading names have taken it on the chin. Taken together with the major averages which failed to break through resistance, this bodes unwell for the markets in general. That said, always keep a close eye on stocks with constructive pullbacks during corrections as they are often the ones with the strongest bounces when the weight of the market comes off.

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