MLR - Premarket Pulse January 18, 2013

Published : January 18 2013 at 8:37 ET

The general markets continued their uptrend on higher volume, with the S&P 500 breaking to new 5-year highs and the Russell 2000 to new all-time highs. China’s economy grew by 7.9% in the fourth quarter compared to a year earlier, ahead of economists’ expectations. The world’s second-largest economy seems to be on the mend and potentially has avoided a hard landing. For 2012, Chinese GDP growth came in at 7.8%, down from 9.3% recorded in 2011.

The SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) moved higher on higher volume but hit resistance at their respective 50-day moving averages. Quantitative easing bodes well for hard assets, especially gold and silver, and it may simply be a matter of watching the metals here for any potential pocket pivot moves that would carry them above their 50-day moving averages. Both the GLD and the SLV have undercut their early November lows and are now rallying above them. While we aren't so sure whether this will set up some sort of "Shakeout-Plus-Three" buy signal, we would, however, be on the lookout for something more akin to a "Shakeout-Plus-Pocket-Pivot" buy signal that we would consider somewhat more precise and actionable.

Richard Branson's Virgin Media (VMED) had a pocket pivot in Thursday's trade and is still within buying range. The stock obeys its 50-day moving average and has been climbing steadily higher within a constructive and well-formed shallow uptrend along its 10-day moving average.

Home Loan Servicing (HLSS) is had a pocket pivot/base breakout. Apparently, the issuing of some new mortgage servicing rules impact some stocks in the group but not HLSS, which reacted positively to the news yesterday while other mortgage-service stocks such as Nationstar Mortgage (NSM) and Ocwen Financial (OCN) finished down on the day. If NSM is unable to hold the 36.60 low (allowing for a 1-2% undercut) of its intra-day gap-up day of nearly two weeks ago, HLSS becomes a better candidate in our view. Earnings have been hugely positive over the last 3 quarters compared to prior quarters which were negative. Institutional sponsorship has grown last three quarters. and the stock's industry group rank is a top-performing #3.

Apple (AAPL) remains in its choppy "mosh pit" as buyers and sellers take theiir respective stands going into next week's earnings report. Expectations are low, so unless we see some sort of decisive technical move prior to earnings, whatever side of the AAPL trade one wishes to take at this time is basically a roll of the dice that carries some short-term risk, although we still believe AAPL is headed lower over the longer-tem.

With improving market conditions, we expect to see new leadership emerge, unless this is a repeat of the 2009 junk-off-the-bottom led rallies, and we must admit that we have seen a fair number of such "JOB" stocks moving in this environment. There has also been constructive action among stock that have real leadership potential, and this is where we prefer to focus our attention. For example, pocket pivot buy points occurred yesterday in housing and housing-related names Pulte Home (PHM) and U.S. Gympsum (USG), two stocks that have been among those leading the move. Both are buyable on the basis of yesterday's pocket pivots. The boom in housing is being led by apartment construction, and we believe as well that the continued Obama policies of propping up the housing and mortage markets while pressuring banks to write mortgages for lendees unfit to borrow in the first place could have the effect of creating a mini "echo" bubble in housing.

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