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MLR - PMP 10/23/13

Major averages moved up on higher volume as the unemployment report came in weak. While economic weakness is perceived to be good for the markets as it delays any tapering of Federal Reserve bond buying, the NASDAQ Composite Index closed mid-range for a churning day as several big-stock NASDAQ names came under pressure. Futures are down this morning on European weakness and an earnings miss from Caterpillar (CAT), which is trading down nearly 5% at the time of this writing.

Netflix (NFLX) gapped up then reversed its entire 10% gap to close down 9% in huge volume. This could indicate at least an intermediate term top for the stock as the price seems well ahead of fundamentals. While leading stocks can go from overvalued to even more overvalued, major high volume reversals can spell the beginning of the end, at least in the near to intermediate term.

Nuskin (NUS) had a buyable gap up (BGU) yesterday morning then reversed to close its gap, but by the closed managed to recover close mid-range. On rare occasion, quality BGUs may close their gap but always keep this in context with action in the general market. In the case of NUS, it closed its gap when the major markets had a bout of intraday weakness. If you sold your whole position when NUS closed its gap, you could have bought it back closer to the close, but by then, NUS was up 8.4% which may be beyond your risk tolerance limits. Fortunately, stocks such as NUS that close their gaps then move back to a contextually reasonable close are rare.

Tesla Motors (TSLA) has been trying to find support along its 50-day moving average, but this morning is again trading below the line in pre-open trade. Like NFLX and LNKD, TSLA is another big-stock leader in this market that has come under pressure, which could have implications for the broader market.

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