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MLR - Pre-Market Pulse for Thursday, July 25, 2013

Major averages yesterday were flat to lower on higher volume. Despite closing up on the day, the NASDAQ was not able to capitalize on Apple's (AAPL) big upside gap to move significantly higher as it showed some churning action. Futures are mixed pre-open with the NASDAQ benefitting from Baidu's (BIDU) gap-up following an earnings "surprise" that saw earnings growth come in at 0%. S&P futures are down, providing a sharp contrast to the action pre-open.

Facebook (FB) earnings came in stronger than expected sending the stock soaring 20% in after hours trading, and pre-open the stock is up nearly 30% The company now has 1.15 billion monthly active users, up 21% from the year-earlier period. Facebook said its mobile ad revenue now made up 41% of total ad revenue, up from 30% the previous quarter. Despite the major gap up, this does not yet constitute a buyable gap up as the stock 'has been in a sideways move since its IPO and therefore has never even doubled in price. In general, stocks should have at least doubled from their IPO price before they can be considered a strong stock. Stocks that have yet to do this are more likely to fail.

Apple (AAPL) which also had a strong earnings report finished the day up over 5%. That said, the stock has been in a major downtrend, so this first gap up may not be strong enough to help AAPL establish a new uptrend especially given its dearth of killer apps and products in its pipeline.

Lumber Liquidators (LL) had a buyable gap up after a positive earnings report. Institutional sponsorship has grown over the last 7 quarters and earnings remains robust.

Illumina (ILMN) gapped up after announcing 8% earnings growth. While technically this is a buyable gap-up type move, and the stock did surprise on the upside with much stronger than expected revenues, can an 8% earnings grower be considered all that fundamentally powerful? Bottom line, however, is that any buyable gap-up move can be tested given that the intra-day low of the gap-up day serves as a nearby selling guide should the stock fail on its BGU.

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