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Market Lab Report - Premarket Pulse for Thursday, January 11, 2018

The major market averages gapped down and sold off at the open yesterday, but soon found their feet to close near the highs of their daily price ranges. A report from Bloomberg that China was cutting back its purchases of U.S. Treasuries was the instigator, and sent bonds selling-off to the downside. Bonds had already been selling off over the past few days, so its not like this was anything new.

However, if money comes out bonds, then it may very likely end up in stocks, which, as we like to say, "are the new bonds." If the breakdown in bonds, combined with the breakdown in the dollar, and the current rally in gold is forecasting inflation, then stocks are traditionally seen as a hedge against inflation. So the linkage between a bond sell-off and a stock sell-off like we saw at the open yesterday doesn't necessarily hold, and that may be why stocks closed as well as they did.

This morning futures are up after a Chinese regulator blasted a report that Beijing will scale back its U.S. bond purchases as “fake news.” That said, China may eventually find that U.S. bonds are becoming less attractive and that trade tensions with the U.S. could provide a reason to stop buying U.S. bonds. 2017 was the weakest year for the dollar in seven years. Over a third of China’s foreign exchange reserves of $3.1 trillion are held in U.S. Treasurys.


Here's a VooDoo set-up for you: Stitch Fix (SFIX), a recent hot IPO that formed a nice IPO flag and broke out in raucous fashion two weeks ago, but the party didn't last too long as it was sold into. This is understandable since "flippers" who bought the IPO may have decided to bank some profits given that the stock came public at $15 a share. That has sent it right back into the top of the prior flag and the 20-dema, with volume drying up to -78.1% today. This thing averages 1.6 million shares a day in average volume, and is one of the best-acting IPOs we've seen in a while based on its price movement from its initial offering price and first day of trading. It is typical of something that would be featured in the VoSI VooDoo Report.


Focus List Notes:
Coherent (COHR) pulled (or rather, dove) into its 50-dma on below-average volume, putting it in a lower-risk entry using the 50-dma as an uber-tight selling guide. We would want to see a quick recovery off the line. Earnings are expected on February 5.
Square (SQ) is holding very tight sideways as volume dried up to -46% below-average. This looks buyable here on the basis of last Friday's pocket pivot at the 50-dma, using the line as a selling guide.
Take-Two Interactive (TTWO) pulled into its 50-dma yesterday and found support near the line, closing up on the day. We discussed in yesterday's notes that such a pullback would present a lower-risk entry.
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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. ©2018 MoKa Investors, LLC DBA Virtue of Selfish Investing. All rights reserved.
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