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MLR - PMP 5/9/14

The European Central Bank decided to leave rates unchanged at record low levels. Markets initially reacted negatively to this decision, but then at his press conference, ECB president Mario Draghi said the ECB could lower rates once again as early as June, and that the ECB was ready to use "unconventional" means to stimulate the European economy. This initially sent markets higher but the indexes steadily gave up their gains as a number of former leading stocks came under pressure. Some European bourses and the S&P 500 are trading at or near new highs, but the divergence created by a severely lagging NASDAQ Composite Index has bearish implications. While the indexes rolled over on lighter volume, it was more indicative of a lack of buying demand than anything else.

Former leader Tesla Motors (TSLA) gapped lower, finishing a hair above its 200-day moving average after a weak earnings report. Since the correction began, leading stocks in general have gotten caned with little sign of a proper rebound. Biotech ETF BBH once again finished under its 200-day moving average on higher volume and looks to be heading lower based on recent price/volume action. We still see Celgene (CELG) as a short-sale target with the idea of using the 50-day moving average as a guide for an upside stop. Internet stocks, another former leading group, also look ill as number of former leaders approach or trade under their respective 200-day moving averages. Futures are down this morning as the market's weakness is a bit more obvious this morning. With a number of oil names rolling over yesterday, the impetus behind the stronger action of the NYSE-based indexes is in question. As well, we have seen the strength in the S&P 500 and Dow as more indicative of a sea-change as institutional investors have rotated out of high-P/E high-flyers and into more defensive, larger-cap, stable names as they "hunker down."

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