Market Lab Report – Premarket Pulse 12/2/15

By | December 2, 2015

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Major averages rose yesterday on lower volume. After forming a multi-month basing pattern, the majors look poised to breakout to new highs as they now sit less than 2% away from blue sky. The issue will be whether they encounter resistance as they pierce into new high ground much as they have numerous times this year. The US markets have only had miniscule help from quantitative easing, which formally ended in the US in late 2014, to propel them higher with any consistency. That said, it does seem that US markets have now turned their attention to the impending first rate hike in nearly a decade. The reaction has been more or less bullish as markets price in a probable rate hike. The failure of QE to stimulate global economies is due primarily to the purchasing of government debt instead of corporate bonds while raising taxes as much as possible to pay for QE. With the three types of inflation – asset, demand, and currency inflation – government debt only serves to eventually increase asset inflation while devaluing the currency. Only corporate debt can increase demand inflation which is a true sign the economy is recovering.  In 1913, the Federal Reserve was established with the directive to buy only corporate debt, never government debt, to stimulate the economy. Thus, when banks were reluctant to lend, the Fed would buy the corporate paper and that would prevent rising unemployment by stimulating growth in corporations. But then World War I came along in 1914, and directive of the Fed was changed so they would start to buy government bonds. Sadly, the directive continues today. Ending QE and hiking rates is healthy for US markets despite the QE punch bowl having been removed about a year ago. The Federal Reserve is not following other central banks as the Fed seems to understand that negative rates destabilize pension funds and the efficient use of capital. The Fed has said it cannot be held hostage to easy money policies set by other central banks, thus sees that interest rates must rise to be “normalized” to prevent a further economic crisis. Indeed, markets seem to be reacting bullishly. Identity theft protection company Lifelock (LOCK) had a pocket pivot. Earnings are accelerating, group rank 47. LOCK gapped higher on its prior earnings report. Airline company Virgin America (VA) had a pocket pivot. Earnings are strongly accelerating, institutional sponsorship has grown over the last 4 quarters since the company went public, group rank 42. After hours yesterday VA announced a 26 million share secondary offering which is bringing the stock down this morning. Investors should wait for the offering to be priced before acting on this pocket pivot. Electronic market making and brokerage firm Interactive Brokers (IBKR) had a pocket pivot base breakout. Earnings and sales are re-accelerating, institutional sponsorship has grown over the last four quarters, pretax margni 45.4%, group rank 92. Scalper1 News

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