MLR - Premarket Pulse October 17, 2012

Published : October 17 2012 at 8:41 ET

The NASDAQ Composite closed above its 50-day moving average on higher volume and the S&P 500 also continued higher on higher volume after bouncing off its 50-day moving average on Monday. After-hours NASDAQ 100 futures took a hit yesterday following disappointing earnings from Intel (INTC) and Intuitive Surgical (ISRG), which figures into a lower opening that the NASDAQ futures are currently showing this morning. International Business Machines (IBM) also took an 8-9% hit after announcing earnings yesterday as well, as third quarter earnings reports continue to underscore a pattern of weakness. The earliest that we could see a follow-through day would be tomorrow, Thursday, as this would be the fourth day of an attempted rally.

This morning, the Commerce Department reported that construction on new U.S. homes rose 15% in September to an annual rate of 872,000, well ahead of estimates and marking the highest level in more than four years. Building permits, a sign of future demand, also shot up to a four-year high, rising 11.6% to an annual rate of 894,000. The latest report shows the U.S. housing market is gradually recovering from its worst slump in decades. Economists had expected starts to climb to an annual rate of 770,000 on a seasonally adjusted basis.

Yesterday's economic data showed the Consumer Price Index (CPI )jumping to 0.6% in September, mostly because of higher gas costs while core CPI rose a seasonally adjusted 0.1% for the third straight month, below expectations of a 0.2% increase in the core CPI . Overall, consumer prices have risen an unadjusted 2.0% over the past 12 months, up from 1.7% in August. In other economic news, industrial production rose 0.4% in September ahead of forecasts, and a homebuilder sentiment index increased to a new six-year high for October in line with expectations.

In yesterday's pre-market commentary we discussed Michael Kors Holdings (KORS) as a stock exhibiting very strong technical action in the face of a market sell-off, and this assessment turned out to be prescient as KORS flashed a strong pocket pivot (see for complete details on pocket pivots) as the stock continues to buck the downtrending market, always a sign of strength. Earnings are triple digit % gains over the last 2 quarters compared to the same quarter a year ago, and sales growth has come in at 58%, 71%, and 70% over the last 3 quarters. Institutional sponsorship continues to climb since the company came public. We have reported on KORS in prior reports.

AAPL moved higher on higher volume but is still trading below its 50-day moving average which would likely present resistance on the upside at around the 661 price level. AAPL has successfully tested the top of its prior base and the point of its August breakout, avoiding a complete technical breakdown so far.

Short-sale targets we've discussed recently, Intuitive Surgical (ISRG) and Baidu (BIDU) have been mixed with ISRG stopping out at the 50-day moving average on Monday while BIDU remains in play as a short-sale target despite pushing past the 110.95 intra-day high of the gap-down day of six trading days ago. So far BIDU has filled that gap with resistance now at the 50-day moving average at 116.74. Thus we might look to short the stock into its current rally with the idea of using the 116.74 level as an upside stop. Nevertheless, the short-side of the market is still far from developed, and the situation remains fluid.

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