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MLR - PMP 5/7/14

Major averages fell sharply on rising volume after an anemic bounce in the majors over the past week. The S&P 500 finished just above its 50-day moving average while the NASDAQ Composite looks poised to revisit its 200-day moving average. With technology stocks including software, telecom, internet and chip stocks getting hit hard, the NASDAQ Composite fell further than the S&P 500. Indeed, tech and biotech stocks which led the way higher prior to the correction have shown pronounced weakness.

Quantitative easing seems less effective this time around which could be the market, which is forward looking by typically 6 to 9 months, telegraphing that interest rates will rise sometime in early 2015. On the other hand, it could be the market doubting QE altogether, in which case, the correction which began with a whimper may end more thunderously, especially given the lack of any meaningful economic recovery.

As always, price/volume action will be our guide. Keep your stops tight if you are holding any long positions, and make sure to lock in profits on the short side as they present in context with the price/volume action of the chart, as stocks can bounce sharply when oversold.

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