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MLR - PMP 8/22/13

The major averages fell yesterday on on mixed volume. The Fed's minutes showed the Fed would begin to taper its $85 billion-per-month bond purchase plan by year end, but did not make it clear if it would come in September, October, or December, the three remaining meeting dates for 2013. In the minutes, they discussed the possibility of changing forward guidance, lowering the unemployment guidance from 6.5% to 6%. While that could be considered bullish for stocks as it implies the Fed will be slower to act on tapering QE, the markets are forward looking by typically at least 5 months so the bond markets have already been telegraphing the start of tapering for a number of months, and finished lower once again as they've been in a downtrend since May that is steepere than the one prior. The U.S. markets, meanwhile, have moved higher, fueled by QE. With QE nearing the beginning of its eventual end, a major top could be forming here though such tops can take time to complete.

Conflicting views were expressed with respect to pulling the trigger at the September meeting with some supporting but some against such a move. Markets initially sold off after the minutes were released then rallied hard then reversed all of the rally to close lower. Such volatile action is not uncommon as bulls wrestle with the bears for position, and uncertainty remains a factor.

Futures are trading higher, helped by economic news out of China whose manufacturing data saw a surprise rebound in August, and the PMI rebounded to a four-month high of 50.1. In Germany, the yield on the German bund jumped to a 17-month high after data showed business activity in the euro zone expanded at the fastest pace in over two years in August. Thus evidence continues to grow that China and Europe are turning the corner.

A number of cross currents can cause rip tide action, i.e., volatility, in the markets so reducing position sizes if you're at all long the market may be prudent depending on your risk tolerance levels.

GME should have a buyable gap up when the market opens today. While earnings and sales have been poor, this is a potential turnaround in its business as it sees Q3 EPS 50-55c vs consensus 35c, and also reported Q2 EPS 9c vs consensus 4c. Fiscal year estimates were revised higher as well to $3.00-$3.20 but are more in line with current consensus of $3.15.

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