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MLR - PMP 4/8/14

The market continued lower yesterday after Friday's bearish reversal. With the bull trap having snapped shut, the indexes have moved into at least a short-term downtrend. The S&P 500 pulled down to a point just above its 50-day moving average yesterday, an area that could provide an excuse for a market bounce given how oversold so many leading stocks are. The past two trading days, however, have seen many of these names continue to be pummeled despite their extreme oversold conditions, and selling has now spread into other areas that were previously outperforming and enabling the S&P 500 to move to a bull trap new high on Friday on an intraday basis. This rotation was erroneously seen by many pundits and market commentators as a "constructive" development for the market, especially in light of QE as a repeat of market history since January 2013, but in fact, it has turned out to be indicative of institutions "hunkering down" in preparation of what may very well be a worsening market environment over the ensuing days and weeks. Thus remaining flexible has been key as major averages could fall another few percent or more before finding a QE floor. And of course, there is always the possibility that the correction ends worse than QE history has shown. There is no reason to be long stocks in this market unless one believes they are able to play short-term bounces in oversold situations, some of which, admittedly could have sharp upside moves. 

Short-sale target Stratasys (SSYS), for which we sent a report out on last Thursday as it rallied up into its 50-day moving average at around 116, undercut the 100 level yesterday before bouncing slightly from that level. On a short-term basis, that could be seen as an initial downside price target, looking for a rally back up into the 200-day moving average at 109.65 as an optimal short-selling point in the event the stock is able to bounce up into the line from here.

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