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MLR - PMP 4/7/14

The S&P 500 and Dow Jones Industrials initially moved to all-time highs Friday on an intraday basis before staging a very bearish reversal on heavy volume. While the NYSE-based indexes had been holding up much better than the NASDAQ, this was primarily due to the movement of money flows into safer, more stable, low-P/E big-cap and dfensive names. On Friday, however, the jig was up as the NYSE-based indexes staged big outside reversal on heavy selling volume. The probability that the weakness and divergences seen in the NASDAQ Composite and Russell 2000 will substantially drag down the rest of the market has increased.

Whether QE will once again serve to put a floor in the market after a 7-8% correction remains to be seen, but what is much different this time around compared to other sell-offs over the past year has been the extreme and relentless selling in former high-P/E highflyers which, from bio-techs to cloud computing to 3D printers, have been decimated over the past month despite the S&P 500 and Dow Jones Industrials being just over 1% from their peaks. This in conjunction with the clear movement into a more defensive posture by institutions does not appear to bode well for the markets, at least in the near-term. This morning markets across the globe are down and U.S. futures are getting hit as the averages look poised to fall lower given the lack of any meaningful bounce in leading stocks despite the damage done so far.

Over in commodities, the Commodity Research Bureau (CRB) Index seems to have found a floor as its recent uptrend has bucked its 2 year downtrend. Gold may also have found a floor and was up strongly on Friday as a potential harbinger of continued full blown QE. This would imply the QE money printing party will continue to prop hard assets as central banks around the world continue to print en masse, with Bank of China and European Central Bank looking to ease monetary policy once again.

So should history repeat since full blown QE began in January 2013, the major averages should find their footing sooner than later. But instead of waiting for this to occur, which may be a few percent lower or more from here, it is best to exit out of the MDM buy signal. A change of signal will be forthcoming to members before the open.

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