Major averages rose on lighter volume yesterday. The Market Direction Model senses this to be more of a dead cat bounce as leading stocks continue to falter and distribution days continue to pile up. Futures action this morning, however, reveals that this dead cat has not yet used up all of its nine lives. Nevertheless, should the bounce show signs of faltering the MDM is increasingly more likely to switch to a neutral/cash or sell signal. The UVXY/VIX volatility model, meanwhile, may also capitalize on this by switching to a buy signal since general market direction moves inverse to the UVXY/VIX volatility model. So far, the indexes have been reluctant to roll over like a dead dog, instead acting more like a dead cat with nine lives as it continues to "melt up" off of last week's lows.
Gold continues to rebound strongly with huge demand for physical a major contributing factor. Yesterday, the Shanghai Gold Exchange's benchmark cash contract exceeded 43,000 kilograms (43 metric tons) for the first time ever, according to its website. Meanwhile, the U.S. Mint's website shows data that indicates the mint has sold 167,500 so far in April in comparison to 62,000 ounces sold throughout March. The paradox of paper gold and silver selling off as hedge funds dump the SPDR Gold Shares (GLD) ETF amidst fears that bankrupt European sovereigns may sell their gold holdings to facilitate bailouts while physical demand remains extremely strong on the way down remains a fascinating dynamic.
Vertex Pharmaceuticals (VRTX) gapped up on massive volume last Friday on news that it is cracking the code of cystic fibrosis which will help one of their products further along its pipeline. The stock held above Friday's intra-day low yesterday, and remains in position as a buyable gap-up. That said, negative earnings and slowing sales in this challenging market environment put higher-than-normal risk on this name so if one were to invest in such a stock, smaller position sizes would be wise.
Netflix (NFLX) is gapping up strongly this morning after beating on earnings last night after the close. It is yet to be determined how volume will shape up as well as where the stock will establish an intra-day low, so we are monitoring the situation with NFLX today as a potential BGU develops. This is NFLX's second gap-up in 2013, and the stock has more than doubled since then, so there is the potential for it to become more risky at current price levels.