MLR - Premarket Pulse January 9, 2013

Published : January 9 2013 at 8:42 ET

Major indices closed lower but held in the upper half of their trading ranges on Tuesday. Volume rose across the board, resulting in distribution days for all the major indices. As the market drifts sideways to slightly lower some "fatigue" is evident as buyer urgency subsides, but so far the indexes are holding their ground well considering the magnitude of last Wednesday's move.

The SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) both remain below their 200-day moving averages as concerns about phasing out QE3 sometime this year had knocked down both ETFs in recent weeks. While intuitively one would expect continued QE and a Fiscal Cliff that does nothing to cut spending would result in sharp upside moves in the precious metals, but instead the reaction has been to the downside. This is somewhat of a conundrum, but it may be that the action of the precious metals is hinting at something that is yet to be revealed. All we know for certain is that neither gold or silver is anywhere cllose to an actionable buy point, and so we are left to puzzle over their price action in the face of more "print-and-spend" fiscal policies.

Earnings season kicked off with a number of big cap stocks including Alcoa (AA) rising in extended trading after its revenue beat forecasts, Monsanto (MON) continued its uptrend, reaching a multiyear high on its upbeat report, and Seagate Technology (STX) moved higher after hours as its preliminary quarterly sales topped expectations. On the downside, Yum Brands (YUM) slid 4% Tuesday after warning late Monday about its Q4 sales. This comes after two prior gap downs in recent weeks. Regeneron Pharmaceuticals (REGN) gapped down yesterday after announcing sales for its flagship drug, Eyelea, that beat estimates, but the stock was able to claw back to close at the peak of its intra-day trading range. If the stock can hold the 50-day moving average as it did yesterday it may be able to work its way back to the top of its current price range.

On Monday, we advised keeping an eye out for a potential "Wyckoffian" low in AAPL as it pulls back and tests its recent lows on lighter volume. Tuesday morning right off the open, the stock looked ready to launch higher as it broke out intra-day to the 531-532 level before it's "Wyckoffian" bounce reversed course. Going into earnings on the 23rd, the stock doesn't seem to have a lot of punch behind it, but it is not clear whether one can get away with shorting the stock now and holding through earnings in the hopes of catching some sort of gap-down move after earnings. If one were to try and test AAPL on the short side, then we think the only sane way to do this is through the implementation of the short-term system we have discussed in our weekly intra-day webinars. A higher volume reversal today would negate any attempts at a "Wyckoffian" low, in our view, and if one is able to gain some sort of downside cushion in AAPL before earnings are announced, then it could be possible to hold a measured short position (say 10-20% of net account equity or less, depending on one's taste for risk) going into earnings since often a head and shoulders formation will finally resolve itself by "breaking out" to the downside on an earnings-related gap.

Some have asked us how this relates to Cirrus Logic (CRUS), one of AAPL's suppliers, and we would answer that it doesn't. CRUS is not in the same position, technically, as AAPL, since it has already pushed into its 50-day moving average at around 30.50 yesterday morning before reversing course. Thus it is clearly shortable using the 30.50 high as your stop, although one must be aware that any positive reaction from AAPL when it announces earnings will likely show up in a sympathy pop from CRUS. While one can certainly look to short stocks like AAPL and CRUS if the market should begin to show some cracks here, or even on the basis of their own weak rallies on a stock-by-stock basis, we are reminded of a line from one our favorite Clint Eastwood movies: "Do you feel lucky, punk?"

Food for thought, yes, but this is a crazy market for crazy times, and when the U.S. government is seriously mulling over the minting of a $1 trillion platinum coin in order to circumvent the debt ceiling for the purpose of being able to pay its debts, alll the while assuring us that it will be "non-inflationary," you've got to wonder whether it isn't their minds that have gone over some metaphorical "fiscal cliff." We hear so much about ceilings and cliffs, but we would like to know exactly where the "floor" is, since that is ultimately what we stand on.

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