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Market Lab Report - Premarket Pulse for Friday, December 22, 2017

Major market averages were up slightly yesterday on slightly lower volume. Tax reform euphoria appears to have run its course, and the massive rally predicted by members of the current Administration as the market "prices in" the tax cuts has yet to materialize. As we move into the long Christmas holiday weekend, we would expect trade to slow down heading into today's close. This morning futures are flat.

It appears to use that the way to make money in this market is mostly by anticipating where the next big move will occur among previously beaten-down groups. For example, coal names have been strong over the past few days, and over the last two days beaten-down oils have suddenly sprung to life. One notable breakout occurred in Diamondback Energy (FANG), which has some of the best earnings and sales growth in a group where weak earnings growth is the rule. One of the stronget coal names, Arch Coal (ARCH) has been trending strongly for the past several days, but its earnings situation is confusing, with a -80% decline in earnings expected in 2017, while sales have been decelerating extremely rapidly. But this is the nature of this market where "stocks are the new bonds." If its a stock, and big money can find a reason, any reason, to buy it, it will.

Another way to make money in this market is to find ways to trade set-ups, sometimes more than once, by finding another set-up after the first set-up fails. Navistar (NAV), which was discussed in yesterday's pre-market pulse, illustrates this quite nicely. When its buyable gap-up move of three days ago failed, it moved lower in its pattern to fill the prior gap-up "rising window," which is highlighted in yellow on the chart. As we discussed yesterday, this could set up another long entry, using the idea of the gap-fill as a pullback type of entry trigger. That worked quite nicely yesterday as the stock rallied over two points intraday before ending the day up 1.89, or 4.42%.

NAV demonstrates the idea that if an ostensibly "bullish" set-up like a buyable gap-up (BGU) fails, one can look for more contrarian, "Ugly Duckling" set-ups like a gap-fill as a possible re-entry at the lows of the gap-up "rising window." Thus, when one set-up fails, one can then look for another lower in the pattern.

Focus List Notes:

Caterpillar (CAT) is one leading name with strong earnings and sales growth that is responding with vigor to tax cut legislation. Yesterday the stock moved another 2.12 higher as it begins to go slightly parabolic in the very short-term.

Facebook (FB) dipped below its 50-dma on light volume. Tech names have remained under  pressure as the NASDAQ 100 Index lagged, barely up 0.21 points, which rounds out to 0% (more precisely 3.24440070511642e to the negative-5th percent for the scientific-minded), on the day.
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