Major averages were flat to down on higher volume yesterday. The markets started higher after it was announced that Janet Yellen, who is perceived as a dove in keeping interest rates low via quantitative easing, would replace Ben Bernanke next year as head of the Federal Reserve. The markets then aggressively sold off as the correction continued. The oversold markets bounced later in the day as headlines reported that the U.S. should avoid an historic default on its debt. The bounce continues in today's premarket trading as futures are up nearly 1% at the time of this writing. Obama is scheduled to meet with House GOP leaders to discuss the standoff. This is the first meeting being held between opposing sides since the government shutdown began. If the meeting does not produce any tangible results and merely serves to prolong the stalemate, the market could return to its corrective ways.
The damage done to leading names over the last couple of days has been pronounced. Many have come off sharply after trading at or near highs. The current cash signal issued by the market direction model may be short lived as the market finds its footing given the state of quantitative easing by all major central banks and the House and the Senate coming to some agreement before the debt ceiling issue becomes catastrophic. Of course, should this bounce prove weak and/or selling accelerate, the model could remain in the safety of cash or switch into a sell signal.
Tesla Motors (TSLA) hit its 50-day moving average then bounced to close midbar. Those trading around a core position and using the 7-week rule would be using a violation of the 50-day moving average as their ultimate sell stop, although one could have used the 10-day line if one was implementing a policy of keeping very tight stops.
U.S. Silica Holdings (SLCA) is one of the few stocks that has remained in an uptrend since the market began correcting in earnest, and hit news highs yesterday.. SLCA is involved in fracking which is used as oil and gas proppants. While earnings have been slowing to flat levels, earnings growth is expected to reaccelerate in coming quarters as fracking begins to gain traction on an international scale. We have reported on this stock in prior reports (see archives).