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MLR - PMP 5/5/14

Major averages stalled again at near-term resistance as the NASDAQ continues to trade well below its 50-day moving average while bumping up against its 65-day exponential moving average. 10-year and 20-year bonds marched higher again, almost at a year's highs while unemployment dropped to 6.3% due mostly to a record number of 806,000 individuals dropping out of the labor force. Last Monday, Q1 GDP came in at 0.1% vs a 1.0% estimate earlier in the week, providing some evidence that quantitative easing does not seem to be living up to the expectations of a recovering economy.

Not surprisingly, leading stocks and major averages have bounced in anemic fashion at best. Given that leading stocks and NASDAQ Composite have been hit harder than at any time since QE went full bore in January 2013, the market could be telegraphing to investors that not all is well, and perhaps a major top is forming. Since we cannot know for sure if and when the market will form a major top, going with the action of leading and formerly leading stocks is the proper course to take.

Most, if not all, formerly leading stocks remain well off their highs and many have formed what appear to be head and shoulders formations with the most recent rally in the market off the April 15 lows serving to form right shoulders in many of these patterns. Most recently we observe what may be the peak of a right shoulder forming in the chart of Las Vegas Sands (LVS), which we see as shortable using the 50-day moving average at 80.59 as your guide for an upside stop. LVS closed right at the line after gapping up and churning on heavier volume, and this morning is gapping down slightly which could end up forming an "evening star" type of formation depending on whether the gap down holds by the open. We currently have a position in the stock.

Futures are down this morning as European markets sell-off as tensions in the Ukraine ratchet up once again. Risk/reward favors holding cash or playing the market on the downside as the Market Direction Model remains on a sell signal.

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