MLR - Premarket Pulse October 11, 2012

Published : October 11 2012 at 8:41 ET

The major averages got hit again on heavier volume as the NASDAQ Composite logged its fifth distribution day, closing the day in short-term correction territory now 4% off of its recent price peaks. Quantitative easing kicked in minutes before close, propping the markets on big volume in the last several minutes of trade, as shown by institutional money flows. The Federal Reserve released its Beige Book which was in line with expectations, but for the most part the market remains in a "catalyst-free zone." Even a Moody's downgrade of Spain to BBB- from BBB+ had no effect on U.S. futures after a brief dip after-hours following the news. This morning the futures are up strongly as the market is in a logical area from which to stage a reaction rally and bounce as the need to sell becomes a bit obvious after four straight days of sell-off, including last Friday's higher-volume reversal.

The S&P 500 hovers just above its 50-day moving average while the Russell 2000 found support at its 50-day moving average. Meanwhile, the NASDAQ Composite bearishly traded under its 50-day moving average on increasing volume for a second day. That said, in prior market pullbacks from May through July of this year, the market would move lower on increasing volume, taking leaders with it. And just when it seemed as if the market would accelerate its downside move, it would then reverse to the upside. Sell signals issued by our Market Direction Model during those months, even though quantitative easing was less prominent, were typically met with upside reversals. As we are now in a full blown quantitative easing environment, shorting can be more challenging than normal, though there are some shortable stocks that are set up just right as we have made members aware. The model will continue to monitor any further deteriorating action in leading stocks and major indices.

AAPL meanwhile finished up on the day, though on lighter volume, as it followed up on Tuesday's logical rally and bounce off the top of its prior base formation at around the 624 level. Other big NASDAQ stocks have broken down, with weak stocks like Intuitive Surgical (ISRG) and (PCLN) breaking below their 50-day moving averages on above-average volume, while a leader like (AMZN) closed below its 50-day moving average for the first time since breaking out throug the low 230 price area during the summer.

Precious metal ETFs, the SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) finished about break even and may be stabilizing here in an attempt to continue setting up for a new run at their recent highs. With Mitt Romney surging in the polls, the market may be considering his comments that if elected he would fire Fed Chief Ben Bernanke, throwing a wrench into current Fed policy. Still, Bernanke's term does not end until 2014, and a Romney Administration would be hard-pressed to send him packing before then. Therefore it is not clear that current Fed QE3 policy is in jeopardy, at least in the near-term, on the basis of a Romney victory in November.

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