MLR - Premarket Pulse April 3, 2013

Published : April 3 2013 at 8:37 ET

A bifurcation in the markets was observed yesterday as the NASDAQ Composite, S&P 500, and Dow were all up on higher volume while the Dow Transports and Russell 2000 were lower on higher volume. Divergences between major indexes are often a warning sign. In March 2012, the Russell 2000 was noticeably weaker than the NASDAQ Composite and S&P 500. This was followed by a general market correction of -11.6% on the NASDAQ Composite and -10.5% on the S&P 500, making most investors assume the markets would then fall a lot further since the 10% level was breached. Instead, these levels represented the lows and the markets, with the help of quantitative easing, ground higher in the ensuing months. It was this type of choppy market action absent of sustainable trends that made 2012 the toughest year on record.

Is quantitative easing running out of gas? At least it seems this way for this uptrend which began last November. So while the general markets seem unfazed when it comes to bad news here or abroad, they also are making slower and slower upside progress, and the action in leading stocks is uneven while a number of slower-growing names rise up off their lows. Meanwhile, precious metal gold is heading back to retest its lows. If it breaks the 1531 level, it will be the first time it has broken this uptrend which began in 2001. Interestingly, prices for physical gold and silver remain well above current paper prices. American gold eagles are selling for about $1664/oz while silver eagles are priced at $31.37/oz despite gold and silver "paper" prices of $1573/oz and $27.20/oz, respectively, based on our checks of prices this morning.

There is nothing that we currently see as actionable on the long side as we sit in a holding pattern for now, but internal divergences are becoming more apparent, thus investors should keep a close eye on their stocks and their stops.

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