MLR - Premarket Pulse January 2, 2013

Published : January 2 2013 at 8:42 ET

Pre-open futures reflect a market that is short-term euphoric over a final stop-gap Fiscal Cliff settlement making it through a skeptical House vote yesterday. While Monday's action came very close to triggering the fail-safe stop-out on the Market Direction Model, the market never moved low enough on Monday to trigger a neutral or sell signal, so the MDM has in fact remained on a buy signal through it all, after a whipsaw buy-to-neutral-and-back-to-buy episode.

It will be interesting to see how the initial reaction pans out as the Fiscal Cliff "deal" essentially raises taxes on higher-incomes above $400,000 for single filers and $450,000 for joint filers while cutting absolutely no spending. Initially, this is posiitive for the precious metals and commodities as it indicates that the money printing and debt issuing ways of the U.S. government will remain on full tilt by necessity. While this is touted by President Obama as a "balanced approach," the reality is that all that he considers to be "balanced" are higher taxes and zero spending cuts to an outrageously bloated ten-figure fiscal deficit.

The strong market action, of course, brings the long side of this market into play, and we will be monitoring today's action for potentially buyable pocket pivots, buyable gap-ups, and standard base breakouts via our intra-day reports. The short side of the market gets put on hold given that Apple (AAPL) pushed through our trailing stop at the 10-day moving average (around 520) on Monday as well as its prior intra-day high of that day at 527.22. As we pointed out, given the extreme news influence in this market, short-sellers must seek to remain very nimble and opportunistic. We would watch for resistance on AAPL as it approaches the 50-day moving average at around 560, which is logical given that the stock was in a position to form a possible second right shoulder in its pattern. It will aso remain to be seen just how much past their 50-day moving averages our two other short-sale targets, Alexion Pharmaceuticals (ALXN) and (PCLN), rally today, although pre-market indications show each looking to open up well within 2% of this key moving average on the upside. Keep an eye out for any failed rallies in these stocks.

On the long side, we like the bases in stocks like Commvault Systems (CVLT) which has staged a third pullback within what could be considerd a now complete ascending base. Other interesting action is seen in the cup-with-handle base in Ellie Mae (ELLI) Valeant Pharmaceuticals (VRX), which was previously identified on its pocket pivot of December 4th, and LinkedIn (LNKD), all of which could stage clean breakouts today. We would also watch Regeneron Pharamaceuticals (REGN) which has constructively pulled back to its 50-day and 10-week moving averages as well as its orignal breakout point from mid-November. We will discuss more long ideas via our real-time intra-day reports as the situation develops today.

We would advise investors to pick your spots carefully if one chooses to buy into this current rally given its extreme news-influenced nature. While on the surface it strikes us as odd that more taxes and higher debt do little to lift the weight off the economy going into 2013, we do not operate from a position of telling the market what to do, or on the basis of what we think the market "should" do. If this rally is real then we will see some valid breakouts, pocket pivots, and buyable gap-ups that work, and it is enough to act on these if and as they occur in real-time.

The SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) both rallied on higher volume on possible avoidance of the fiscal cliff, with GLD closing above its 200-day moving average.

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