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Market Lab Report - Premarket Pulse 9/18/17

Major averages finished higher on higher, triple witching volume. The recent tight consolidation followed by Friday's action is constructive.

Central banks continue to scratch their heads. The Reserve Bank of Australia is saying economic growth in Australia is not strong enough to support a rate hike. Then over in the UK, the Bank of England is saying they're prepared to hike rates within months. But that's provided the economy performs in line with their expectations. And isn't this what the European Central Bank hinted at last year? Yet most recently, the ECB said economic conditions did not warrant a hike in rates at this time, and left the door open to actually boosting levels of QE from the already current record levels. 

Perhaps as a response to this uncertainty, major indices seems to be slowing down, or at least more reluctant to move higher. Over the last few months, every time the market hits new highs, it soon reverses course, typically on a negative news event, where gains that took weeks to achieve are reversed in a day. The market then trades in a sloppy, sideways manner for many days until another negative news event hits. Yet the market is quick to find a shallow floor before making another attempt at new highs due to the pronounced effects of QE.

The current market action remains suspect on this basis as the major averages approach new highs once again. That said, the number of names on our focus list has expanded to 15 stocks which suggests the market may trend higher from here, breaking out of this 7-week basing pattern. One should keep in mind that the 5-week basing pattern in early summer which resolved to the upside made minuscule gains for just a few days before tech stocks got hit hard on July 27 on no apparent news. Yet tech stocks have managed to claw their way back over the last few weeks.

This push-pull between QE and weak market fundamentals has been ongoing. It is not a question of how this sovereign debt bubble will burst but when. Keep a close eye on your stops, but always be on the lookout for new opportunities to emerge either on the long or short side whether you're marketing timing via the timing models or using buying or shorting strategies in stocks.

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