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Market Lab Report – Premarket Pulse 11/6/15

Major averages fell yesterday on lower volume ahead of today’s jobs data. Unemployment came in at 5%, below the 5.1% estimate, the lowest level since April 2008. 271,000 jobs were created in October, well ahead of the 180,000 estimate. Hourly wages rose at the fastest pace since the US recession ended in mid-2009. With the blowout jobs data in place, CME FedWatch now shows the probability of a rate hike in December at 74%. This, however, could create issues as we discussed in our Thursday Oct 29 MLR. The European Central Bank remains firmly pledged to keeping their easy money policies in place, thus no rate hikes are expected from the ECB anytime soon. Further, the Bank of England yesterday said that due to the lack of sufficient global growth as well as anemic growth in the UK, it has no intention to raise interest rates. This flies in the face of analysts and economists who were expecting the BOE to be more hawkish in terms of future rate hikes. U.S. futures fell on the news and are currently down around -0.4% at the time of this writing. Concerns remain that a rate hike may be too soon, and may well stir issues. Social networking site Facebook (FB) had a buyable gap up after a strong earnings report. Pretax margin 57.1%, earnings and sales are re-accelerating, group rank 2. FB is a supercap which attract institutional money in this environment as witnessed by the NASDAQ-100 being the first major index to hit new highs. Website hosting leader GoDaddy (GDDY) had a buyable gap up after a strong earnings report.

Market Lab Report – Premarket Pulse 11/5/15

Major averages fell mildly on mixed volume. So far the indexes have not shown any tendency to pull back more than a couple of days before pushing to higher highs, and larger-cap names that have issued buy signals over the past few weeks following earnings have continued to act well and move higher. With the Russell 2000 now joining the party as it pushes to higher highs and approaches its 200-day moving average, more smaller- to mid-cap names are starting to participate. With US Fed Chairperson Yellen saying there is a “live possibility” of a rate hike in December, CME FedWatch now places the odds of a rate hike at 56% at that next meeting. A few new actionable names hit our screens yesterday. Keep in mind that while the number of such stocks over the last several days has been sizeable, a number of them are not moving higher despite the uptrending market. This is a yellow flag that warrants caution as not all cylinders are firing as they should. Instead, institutional money is flowing primarily into the risk-off, largest cap names as witnessed by the NASDAQ-100 being the first index to hit new highs. Information technology hardware and software product maker CDW Corp. (CDW) had a pocket pivot yesterday on a strong earnings report. Earnings are accelerating, ROE 49.7%, institutional sponsorship has grown in every quarter since the company went public 10 quarters ago, group rank 5. Web-based and mobile fleet management software maker Fleetmatics Group (FLTX) gapped up yesterday on a strong earnings report, then fell but then returned to its gap up price at which time this report was sent. Pretax margin 21.9%, group rank 21. Cloud-based human capital management software maker Paycom Software (PAYC) had a buyable gap up yesterday on a strong earnings report. ROE 24.1%, Earnings and sales are soaring, institutional sponsorship has grown over the last 3 quarters, group rank 21. Facebook (FB) is gapping up this morning after beating on earnings last night. We will be monitoring this for a possible buyable gap-up, and issue a report as appropriate.

Market Lab Report – Premarket Pulse 11/4/15

Major averages rose yesterday on higher volume but closed well off of their intraday peaks. Yesterday. European Central Bank’s president Mario Draghi pledged to continue the ECB’s easy money policies to avert deflation and stimulate growth. As mentioned in prior reports, this ties together other central banks into also keeping interest rates at historically low levels. Meanwhile, renowned bond fund manager Bill Gross warned that the US Federal Reserve should do the opposite of Operation Twist, an easy money policy measure implemented in 2011 where the Fed sold shorter-dated Treasury notes to buy longer-dated government debt. This move drove yields lower on 10-year Treasurys which helped push down other interest rates. Indeed, six years of easy money has yielded only anemic GDP across the board. Gross says lower rates and a flatter yield curve by keeping money easy is the wrong move. According to Gross, “It would seem that lower borrowing costs in historical logic should cause companies and households to spend more. The post-Lehman [Brothers] experience, as well as the lost decades of Japan, however, show that they may not, if these longer term yields are close to the zero bound.” When a flatter yield curve squeezes banks’ net-interest margins, “overall corporate profits are squeezed as well.” The last two times the yield curve flattened were in 2001 and 2008, prior to severe market corrections. Today, it is flattening again. Gross argues that a steeper yield curve is needed, but knows the Fed won’t listen as they believe that easy money will eventually stimulate growth. That said, recent history has shown ultra-cheap money does not always create growth but has the tendency to instead reduce profit margins which put a brake on the recovery. Wholesale food distributor Performance Food Group (PFGC) had a pocket pivot yesterday. Earnings are soaring, group rank 5. They report earnings before the open today. Interactive entertainment software maker Take-Two Interactive (TTWO) had a pocket pivot yesterday. Institutional sponsorship has grown over the last 6 quarters, pretax margin 27%, ROE 32.1%, group rank 20. They report earnings on Thursday after the close. Tesla Motors (TSLA) illustrates why we do not advocate playing “earnings roulette” by holding stocks, long or short, through earnings. In the case of TSLA, members who might have been holding a short position from the 50-day moving average where we last recommended the stock as a short on October 1st, had some cushion to sit through earnings. This morning, the stock is set to gap up above the 220 level, which is still well below the 200-day moving average in the 230 price area. A continued rally into the 200-day line could set up a new short-sale entry point for the stock, and should be watched for.