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MLR - Premarket Pulse May 8, 2013

Major averages were up on higher volume with the Dow Jones Industrials closing above 15,000 for the first time in its history. Despite any negative domestic or international economic or political news, the indexes keep rising thanks to quantitative easing from the major central banks. The bottom line: same story, different day. The NASDAQ Composite has been playing catch up to the S&P 500 with major components Microsoft (MSFT) and Apple (AAPL) aiding its move as they have rallied straight up from their recent lows. The indexes have managed to make marginal progress over the past three days with the NASDAQ barely up yesterday despite the heavier volume. So far, however, the indexes have been reluctant to give up any ground as intra-day sell-offs continue to be met by buyers, resulting in a slow grind back into positive territory as we saw yesterday.

Earnings related gap-up moves have been common, but investors need to be careful about which ones they buy into. For example, Commvault Systems (CVLT), a former leader, gapped up sharply yesterday after beating on earnings, only to reverse about 10% off of its intra-day peak and close in the red. CVLT's v-shaped move off of its recent lows was a warning sign, however, and in this market there have been a number of such v-shaped moves. As well, buyable gap-up moves that result in no upside follow-through after six days or longer are suspect, and in this manner we would contrast the action in buyable gap-ups like that in Netflix (NFLX), which appears to be faltering, vs. a gap-up like Illumina's (ILMN), which moved sideways for three days following the buyable gap-up before moving higher.

Gold is catching a bid this morning, and so far the yellow metal has been able to remain in a sideways consolidation over the past two weeks as it tries to stabilize following its steep mid-April sell-off which, while resulting in panic selling in paper contracts, also induced extremely strong demand for physical metal, a paradox that we would expect to continue even if and as the price of gold, and silver for that matter, continue to decline as a result of heavy selling in paper metals derivatives.

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