MLR - Premarket Pulse December 19, 2012

Published : December 19 2012 at 8:48 ET

The general market indexes rallied again today on higher volume with each moving to a higher-high in the upside move that has persisted since mid-November. Meanwhile, precious metals continue to dive, with the SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) taking the plunge back towards their 200-day moving averages, with GLD bouncing off its 200-day moving average and SLV a breath away from its 200-day moving average. Good news has apparently dulled gold's appeal as a safe-haven metal. A rise in U.S. home-builder confidence, progress in negotiations to avert the fiscal cliff and a credit-rating upgrade for Greece all helped to push the price of precious metals lower and general markets higher. House Speaker John Boehner and President Obama's positions moved closer to agreement as Boehner wants to prevent tax hikes for households making $1 million or less a year, while Obama has suggested $400,000 or less a year.

Homebuilding manufacturer Trex Company (TREX) had a pockpet pivot yesterday off its 50-day moving average and looks to be trading enough volume for a second pocket pivot today. The group as a whole is showing strength and industry group rank is 5th. That said, there are fundamental pitfalls to this group doing well over the long run, but in the meantime, price/volume is showing spark and life in this particular stock making it actionable in potentially the intermediate term. In August, the rating agency Standard & Poor’s announced that it would soon downgrade the ratings on approximately 30% of residential mortgage-backed securities (RMBS) which it had previously rated. S&P had underestimated the percentage of delinquent and “re-performing” loans which it expected to ultimately default. So in September, S&P announced that it had lowered its rating on 259 classes of prime jumbo mortgage-backed securities (RMBS) which were issued between 2003 and 2007. S&P downgraded hundreds of RMBS because it realized its assumption that the worst was behind us was wrong. Oops!

Rackspace Holdings (RAX) is breaking out of a nearly 3-month consolidation, finally following-through on the pocket pivot it flashed on November 28th. Institutional sponsorship has increased 5 quarters in a row. (AMZN) also broke out of a cup-with-handle base yesterday, and we discussed and alerted members to this potential move in yesterday's Pre-Market Pulse before it happened. U.S. Gypsum (USG), which we also discussed in yesterday's pre-open piece, moved higher to break out of a short base by the end of the day, decent follow-through to Monday's pocket pivot move.

Whiile the action in the indexes and a handful of new leaders is constructive, we remain in a heaviily news-influence environment as yesterday's move was influenced by news of the two sides coming closer together in the Fiscal Cliff negotiations. Position sizes should be scaled accordingly, and most importantly, stop-out levels should be determined prior to making any purchase and then adhered to limit risk.

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