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Market Lab Report - Premarket Pulse for Friday, February 2, 2018

The major market averages again spun around in whipsaw fashion yesterday, gapping down at the open, then rallying sharply early in the day before reversing to the downside by the close. Volume was lighter, however, so the S&P 500 and the NASDAQ Composite Indexes, both of which finished the day in the red, avoided distribution days. Investors should remain cautious here as the market sends mixed signals. New entries should be limited to only the most optimal, lowest-risk set-ups, while avoiding extended names. Maintain keen awareness of your stops and selling guides.

Three of the FAANG stocks reported earnings after yesterday's close. AMZN is gapping higher, AAPL is trading slightly lower, and GOOGL is gapping lower at the time of this writing. FB and NFLX both had strong earnings reports in the prior days.

Futures which were already trading lower are being pressured by the January nonfarm payrolls even though payrolls beat estimates which increased by 200,000 vs. est 180,000. The prior month's increase was revised to 160,000 from 148,000. Nonfarm private payrolls rose by 196,000 vs. est 175,000. The previous month's increase was revised to 166,000 from 146,000. The unemployment rate stayed at 4.1%, as expected. Average hourly earnings increased by 0.3% matching estimates, while the previous month's increase was revised to 0.4% from 0.3%. The average workweek was reported at 34.3 vs. est 34.5. The previous month's reading was left unrevised at 34.5.

It will be interesting to see if the current correction turns into something more meaningful unlike past corrections of the previous couple of years. Markets could be telegraphing issues ahead with respect to diminishing levels of QE. Onerous levels of debt remain, and as Deutsche Bank has pointed out, it will be the mother of all tests whether this ageing bull can withstand the unwinding of QE.

Focus List Notes:
AMZN reported earnings after the close yesterday and is gapping back up to its highs this morning. The stock, however, remains extended.
BABA reported earnings yesterday before the open and gapped down to the top of its prior base.  Technically, this brings the stock into a buyable position along the top of the base, with the idea of using the 20-dema, roughly around the breakout point, as your selling guide.
EA held above its BGU low of 126.47 posted on Wednesday. It remains actionable as a BGU, using the 126.47 low, plus an additional 1-3% of downside porosity, as your selling guide.
FB broke out yesterday on strong volume, and remains within buying range of the breakout.
TTWO sold off early in the day on news of a product delay, but closed mid-range and above the top of the prior base. Earnings are expected next week, so we would prefer to go with EA for now.

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