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Market Lab Report - Premarket Pulse 4/19/16

Major averages recovered from their gaps lower on news of the failed Doha talks by major oil producers, and managed to finish higher on mixed volume. Oil also gapped lower by some 4% but managed to recover much of this drop on news of the oil strike in Kuwait as well as short-covering.

MDM and VVM both went to cash at yesterday's open. As we know, the last couple of years have been quite challenging, thus at certain junctures, profit taking can be prudent especially when risk/reward favors it. And protecting profits while minimizing risk has been essential.

The number of various recent headwinds adds weight to the risk side of the equation. Such headwinds include the ongoing lackluster performance of leading stocks as well as the rallies in the major indices that are getting long in the tooth as this is the longest, sharpest rally in the NASDAQ Composite without any minor correction since early 2012. The current rally even beat out, just barely, the rally that started in Nov 2012 which marked the anticipation then the start of QE3.

Another factor is that oil has correlated closely with equities especially this year. With oil gapping lower by 4% before yesterday's open due to the failed Doha talks by major oil producers, the start of a sharp correction could have occurred, thus boosting risk in continuing to remain on a buy signal in the MDM and a sell signal in the VVM.

Of course, QE continues en masse so the capital has to go somewhere, thus yesterday's action certainly shows the resilience of the markets. Still, QE has been with us since late 2008, yet markets always still undergo some sort of correction, however mild, which the current rally has yet to undergo. With the US having exited its QE program quite some time ago, this somewhat counters the QE moves by other central banks. Nevertheless, some trends can go a lot further than expected, so the models could go back into the market depending on risk/reward as it evolves.

This information is provided by MoKa Investors, LLC DBA Virtue of Selfish Investing (VoSI) is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. VoSI reports are intended to alert VoSI members to technical developments in certain securities that may or may not be actionable, only, and are not intended as recommendations. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to VoSI, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Virtue of Selfish Investing. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2024 MoKa Investors, LLC DBA Virtue of Selfish Investing. All rights reserved.
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