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Market Lab Report - Premarket Pulse 6/28/17

Major averages fell on lower volume with the S&P 500 undercutting its sideways formation as it broke below its 20-dema. The NASDAQ Composite sits at its 50-dma as it traces out a head & shoulders pattern.

Weakness was partially spurred on by news Republican leaders are delaying the health care bill that would replace Obamacare. The Congressional Budget Office has estimated that the Senate Republican health bill would leave 22 million more uninsured but cut $321 billion from the federal deficit. Some Republican senators have said they won’t support the bill in its current form, raising questions about whether it can pass.

In other matters, Yellen gave a press conference where she expressed concern about slow labor productivity but reassured markets that another crisis would not happen in our lifetimes. Perhaps she gazed into her crystal ball. Meanwhile, Fed President John Williams gave the bluntest assessment, saying the stock market is running on “fumes.” While it is true regulatory capital at large banks is now at multidecade highs which reduces the possibility of such banks failing, a fact to which Yellen attested by ruling out another crisis, this in no way rules out the possibility of a serious stock market bear.

A number of leading stocks including some of the 'FAANG' names have been hit hard on big selling volume. The 'LUie' patterns which are a product of this QE-distorted environment finally started to break down as they used to do in non-QE markets. These could be signs that we will finally get a meaningful correction. It is also helpful that the ECB said they are considering gradually winding down their QE program. The major averages have never corrected less than they have this year, a scant few percent.

Focus List Notes:

Names on the list continue to come under selling pressure. In many cases near-term support at the 10-dma or 20-dema has been broken, and tests or breaches of the 50-dma are likely.

AAOI dipped below its 50-dma yesterday on below-average volume as buyers stepped aside.

AMZN reversed back below the 1,000 price level and closed below its 10-dma and 20-dema lines, breaking near-term support. It now looks set to test its 50-dma.

COHR broke below its 50-dma on heavy selling volume. This is a negative development for the stock.

FB broke near-term support at its 10-dma and 20-dema and is now testing its 50-dma again.

LITE broke below its 10-dma and 20-dema on below-average volume as buyers boycotted the stock.

NFLX has failed to hold its 20-dema, which it should have done in order to confrm a potential "LUie" formation on the long side. Instead, the "L" formation has resolved as a bear flag breakout to the downside. It has been removed from the Focus List.

NVDA broke near-term support at its 20-dema on above-average selling volume.

SQ, which had been holding tightly along its 10-dma on constructive fashion, has now dipped back below its 10-dma and 20-dema on below-average volume, although selling volume did increased yesterday vs. the prior day.

TRVG reversed on a breakout attempt yesterday to close down on heavy volume. It remains above its 10-dma and 20-dema for now, however.

TSLA broke below its 10-dma and 20-dema for the first time since late May.

TTWO has failed on a possible "LUie" formation as the L-formation instead resolved as a bear flag breakout to the downside. It has been removed from the list.

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