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Market Lab Report – Premarket Pulse 10/29/15

Major averages finished strongly higher yesterday on higher volume after selling off just after the Fed released their statement. The Federal Reserve concluded its two-day meeting leaving rates unchanged but kept the door open for a rate hike in December. The problem is that the economy has slowed over the past six weeks, and Fed Chair Yellen is dovish. Indeed, the third quarter GDP number was just reported at 1.5% compared to the 3.9% in the second quarter, whereby futures rallied mildly on the news from their depressed levels, as they are still off about half a percent. Nevertheless, the Fed must maintain their stance that rates could be hiked in December as they had originally said there would be a rate hike by the end of the year. That said, at this point, central banks must generally move in unison when it comes to quantitative easing since economies worldwide are fragile thus have little room to move. For example, a good portion of the UK economy depends on exports to the Eurozone. If the UK raises rates while the ECB prints more money, the exchange rate will soar and exporters will get stung which will impact the UK economy. On the other hand, while the US is not as dependent on exports, its corporate profits are dependent on overseas earnings, thus puts pressure on the US Fed to keep rates steady, though a token 25 basis point hike for political reasons to keep to their “word” would not be a complete surprise. After the Fed’s statement, CME FedWatch pegs the odds of a rate hike in December at 43%, up from 35%. The eurozone economy is about $13 trillion, just a few trillion shy of the US economy, so with the ECB recently adding even more “ease” to its easy money policy, central banks are not likely to hike rates any time soon, especially given the weakness in the Eurozone’s economy. So while US and UK central bank officials may warn of impending rate hikes, this is most likely political jawboning. Expect rates to stay near zero well beyond what central bank officials say. Inphi (IPHI) had a buyable gap up on a strong earnings report. This comes after the pocket pivot report we sent out on October 15. Earnings and sales continue to soar, group rank 41. Apple (AAPL) had a pocket pivot/buyable gap up on a strong earnings report. Its base is rounding out as it approaches its 200dma. Pretax margin 31%, ROE 46.3%, earnings and sales are robust. Integrated IT management service company Tyler Technologies (TYL) had a pocket pivot. Pretax margin 23.6%, ROE 25.4%, group rank 4. It’s prior pocket pivot four days ago closed in the lower half on a strong day so was invalid. Today’s pivot makes this stock actionable. Beauty store retailer Ulta Salon Cosmetics and Fragrances (ULTA) had a pocket pivot. ROE 22.7%, earnings and sales have been strong and steady. Web-based payroll management software company Ultimate Software Group (ULTI) had a pocket pivot/buyable gap up on a strong earnings report. ROE 26.9%, earnings and sales are accelerating, institutional sponsorship has grown over the last 9 quarters, group rank 20.

Market Lab Report – Premarket Pulse 10/28/15

Major averages barely budged yesterday, finishing mildly lower to consolidate recent sharp gains on higher volume. Declining stocks led advancers, however, by nearly 2.5 to 1 on the NASDAQ and nearly 3 to 1 on the NYSE. The majors are just a few percent away from new highs and have cleared their respective 50-day moving averages, but the underlying action yesterday was weaker than the indexes themselves. The Federal Reserve concludes its meeting today which will most likely be a market-soothing announcement of a dovish nature since they are hamstrung in terms of hiking rates due to the weak global economy. The odds of a rate hike remain at a mere 6%. For the December 16 meeting, the odds are only a bit better at 35%. Twitter (TWTR) disappointed after the close with its earnings report, trading more than 10% lower. This is the third earnings disappointment in a row for the company. Apple (AAPL) also reported earnings after the close which pushed the stock 3% higher after hours before it settled in to be up about 1%, where it is at currently in pre-market trade. AAPL’s last earnings report was considered a blowout, yet the stock gapped down hard. This time around AAPL merely met estimates, which is so far having a positive effect on the stock and the NASDAQ-100 futures, of which AAPL is a significant component. Electronic mortgage origination service provider Ellie Mae (ELLI) had a pocket pivot as it rounds out the lower portion of its base through its 50dma. Earnings and sales are strongly accelerating, pretax margin 25.3%, group rank 34. Semiconductor company Integrated Device Technology (IDTI) had a buyable gap up on a strong earnings report. Earnings are skyocketing, pretax margin 26%, group rank 59. Note that while the stock finished in the lower half of its trading range, it is still up nicely in context with its chart. Naturally, in the days ahead, as a good sell stop, it can be sold should it break below yesterday’s low by 1-2%.

Market Lab Report – Premarket Pulse 10/26/15

Major averages gapped up through their respective 200-day moving averages on Friday, finishing the day higher on mixed volume as a trifecta of tech juggernauts, GOOGL, AMZN, and MSFT, gapped substantially higher at Friday’s open. The Federal Reserve meets this coming week though CME FedWatch puts the odds of a rate hike at just 6%. Indeed, global economic weakness set both the European Central Bank and the People’s Bank of China on a course of additional monetary easing, sending markets higher. The number of actionable names with pocket pivots and buyable gap ups emailed to members in real-time continues to grow as the uptrend appears intact. Major indices which are a few percent away from reaching new highs may stall out, much as they have done this year, but for now, the path of least resistance has been up. That said, the US markets have had two major corrections since 2009, and, after such corrections, it took the markets a number of months of retesting lows before they resumed their uptrends: 2010 = 3 months of retesting/backing-and-filling after the correction 2011 = 4 months of retesting/backing-and-filling after the correction 2015 = We are currently at the end of the second month since the end of the last correction where the market found its low on August 24. So, as always, pay close attention to your stocks, keep stops tight, and take profits where you have them in context with the chart and the general market. That is how money has best been made over the last couple of years. The Federal Reserve The Federal Reserve concludes its 2-day meeting this Wednesday. We are in a massive debt bubble via the QE-morphine drip which began in late 2008. The Fed has painted themselves into a nightmare, though they can get very creative with respect to putting off the inevitable by way of creative QE. Indeed, the IMF and the rest of the world is hoping they will not raise rates anytime soon because it will wreak havoc over foreign debtors and emerging markets who borrowed in dollars. The inevitable does not mean automatic default. History is littered with examples of powerful governments such as Italy in the early 20th century who, facing serious default, simply extended the maturity of their bonds so a short term note became a long term bond (!) while others such as the UK in the early 1930s suspended all debt payments until 1963, thus making almost no progress on reducing their debt during these periods. Naturally, this had a crippling effect on their economies and their currency which is “backed by the full faith and credit” of their respective governments. Hyperinflation? We have been asked whether the inevitable could also mean the eventual onset of hyperinflation in the US as money printing runs amok. The quick answer is there is no chance of this happening in the US at this time. Hyperinflation occurs when confidence in government collapses so people start using the currency of other countries. Numerous examples abound such as Germany in the 1920s, Zimbabwe in the late 1990s, and Venezuela today. The respective government then prints more and more money to make up for the collapse in demand which further devalues its currency, a vicious spiral indeed. That said, the US remains the tallest standing midget. Thus for hyperinflation to occur in the US, other countries would have to be stronger which they are not. That said, China is a major contender and stands, over the coming years, to potentially dethrone the US dollar such that the world’s sovereign currency is transformed from the dollar into the yuan. But such a scenario, when it occurs, is still a number of years off. So in the meantime, as further erosion in confidence in the euro and in certain emerging markets progresses, the US dollar remains the safest place to put money which explains its strength relative to other major world currencies. Of course, know that “safe” is relative and black swan events have occurred numerous times over the last hundred years. It was only several decades ago when Roosevelt ordered all Americans to turn in their gold for $20.67/oz. The US government then repriced gold at $35/oz, a clever way to boost tax revenues while devaluing the dollar. The FDR government then criminalized the possession of gold with up to 10 years in prison for anyone caught with more than $100 in gold. So, based on numerous historical examples, if you think a restructure of bond maturities or a moratorium on debt at some point is too far fetched, think again.