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MLR - PMP 10/10/14

Major averages reversed yesterday's sizeable gains though on lower but above average volume. Germany's exports fell 5.8% in August, the biggest drop since January 2009, intensifying worries that Europe could be on the verge of another recession. Indeed, European markets have been lagging US markets since June as noted by the ETF IEV which tracks a basket of European bourses. IEV is off 15% while the S&P 500 and NASDAQ Composite are off 4-5%.

Each time the market has looked this ugly it has managed to bounce, but we must also understand that each time the Fed has come to the end of its successive QE(n) programs the market has corrected sharply. For this reason the Market Direction Model is shifting to a safer cash signal given the level of uncertainty.

With amplified volatility, it is key to keep position sizes in context with the markets and your personal risk tolerance levels.

Short-sale target TSLA failed yesterday at its 50-day moving average, and today is gapping down after failing to impress investors with its wildly over-hyped "D" presentation last night. Once a high for the day can be established, this is likely a shortable gap-down move using the HOD as a guide for an upside stop.

NFLX is dropping back below its 50-day moving average which puts this on our radar as a potential POD short-sale target, using the 50-day line at 458-459 as a quick upside stop.

As the market gets oversold, short-sellers should seek entry points that allow for tight upside reference points for stops in the event we see another violent upside reaction rally like we saw on Wednesday. The QE market retains a certain random factor to it, and this must be accounted for in terms of risk-management, particularly on the short side.

Gil Morales will be interviewed today on MarketWatch.com radio at 7:00 a.m. Pacific, 10:00 a.m. Eastern. Members can listen in at: http://www.marketwatch.com/radio

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