MLR - Premarket Pulse November 1, 2012

Published : November 1 2012 at 8:26 ET

The NASDAQ Composite closed lower on higher volume, moving below its 200-day moving average earlier in the day, then found its footing and closed right at its 200-day line. Wednesday marks the fifth time the index has tested its 200-day moving average without a discernible bounce. This is a sign of weakness and suggests the downtrend will continue. Nine separate pieces of economic data ranging from consumer confidence to construction spending will be released Thursday morning, so this may help the NASDAQ Composite either bounce off its 200-day moving average or fall through it, continuing the downtrend. Meanwhile, the S&P 500 is moving sideways just above support at around the 1400 level and appears to be working on a short bear flag so far as it remains to be seen whether the market can muster any kind of reflex rally or bounce off of these near-term support levels.

Apple (AAPL) bounced off its 200-day moving average for the second day in a row but only managed to close mid-range. The 200-day line is a critical moving average for AAPL as it has found support at the line every time since 2009 though it did undercut its 200-day moving average by about 6% the week of 6/24/11. A sustained move below its 200-day moving average would be an ominous sign of a potential top should the stock be able to recover as it did in June of 2011.

In another instance of a former leading stock showing negative signs, Regeneron Pharmaceuticals (REGN) moved below the low of its Friday low, with Friday being its first closed below the 50-day moving average, thus causing a technical violation of the 50-day line. The 7-week rule (see for complete details) would have taken the investor to the safety of cash as it moved below this low, or 2.2% below its prior close, had one bought a position at today's opening price. Trading is about risk and potential reward, and given REGN's stellar fundamentals, a 2.2% risk in initiating a position at Wednesday's open could be deemed worthwhile. On the other hand, only a small position would be warranted since the market is in a downtrend.

On the short side, Baidu (BIDU) gapped down on heavy volume as it tests the 106 price area for the third time in the last month. BIDU issued a disappointing earnings report on Monday afternoon, and the stock is losing search market share to Qihoo 360 Technology (QIHU). We see the stock as a shortable gap-down type of set-up using yesterday's high at 110.50 as a quick stop.

Google (GOOG) remains in a short bear flag after collapsing following a premature earnings report two weeks ago. A test of the 200-day moving average appears likely going forward, and the stock could be shorted with the idea of using a quick stop at around the 687 level in order to short-circuit any potential reflex bounce back up to the 50-day moving average at around 713.

Tibco Software (TIBX) which we have discussed previously in our Short-Sale Set-Ups reports is holding the 25 price level which would serve as an initial downside price objective on any short position taken closer to the 27 price area when we first discussed the stock. For those looking for a larger potential gain, the next downside objective would be the 22.57 low of December 2011.

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