Asian and European markets are off sharply this morning, sending U.S. futures sharply lower. The major averages closed roughly flat yesterday on lower volume as they appeared to be consolidating the prior two-day bounce. Major averages closed nearly flat on lower volume. While worries about the Fed slowing quantitative easing have put a yellow cautionary light on stocks for a number of weeks, the unemployment rate bumped up a tick, increasing the odds the Fed will stand pat on its speed of QE. Nevertheless, distribution days have piled up and the recent bounce has been on lighter volume. This morning's weakness implies a test of last week's lows and the ability of the market to hold these lows may be critical in determining the market's future direction. For now, however, the Market Direction Model remains in cash, reflecting the lack of any real trend developing in the market.
Some constructive action has been observed in leading stocks over the past three days, most of which have exhibited pocket pivot buy points which we have reported on over that period. How well these stocks hold up today in the face of this morning's futures sell-off may also provide a clue for investors, so maintaining a fluid posture while adhering to stops is likely the most prudent course of action on a stock-by-stock basis.
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