MLR - Premarket Pulse October 18, 2012

Published : October 18 2012 at 9:32 ET

Both the S&P 500 and NASDAQ Composite Index rallied Wednesday on higher volume in what is now a three-day rally attempt off the lows of last Friday. The three-day rally brings with it the potential for a follow-through day starting today, the fourth day off of last Friday's lows, though because the NASDAQ Composite did not correct more than 6%, a follow through day could have come earlier. A follow-through day in the major market indexes with confirming action in leading stocks would send the Market Direction Model (MDM) back into a buy signal. Futures are down this morning on a sharp 46,000 rise in jobless claims, proving that last week's number was skewed by the failure of somes states, or at least one state, to report their claims numbers in a timely manner for last week's report.

The question for the markets is whether quantitative easing from both sides of the pond is helping enough to start the market back into an uptrend. There is also the issue of a Romney victory which could put a stop to QE as Romney has said publicly he would fire Bernanke and put a halt to QE. That said, QE is alive and well with central banks in the UK and in Europe. Thus, a Romney victory could be favorable for stocks as Romney is pro-business, but somewhat slow the long term uptrend in precious metals. An Obama victory could be favorable for both stocks and precious metals since QE would remain in place and the saying "Don't fight the fed" has continued to hold true. Finally, the Obama Administation is now looking to play hardball over the expiration of the so-called "Bush Tax-Cuts" and is insisting on allowing the tax rates for higher-income individuals and families to expire. This is the "fiscal cliff" that is discussed in the media, and should the U.S. go over this cliff it would raise tax rates on 90% of U.S. income earners and likely spawn a recession.

Precious metals ETFs, the SPDR Gold Shares (GLD) and the Ishares Silver Trust (SLV), were up a hair on lower volume, but for the most part have engaged in a short two-day bounce on low and declining volume following Monday's above-average volume gap-down. While both have held their 10-week moving averages on their weekly charts so far, they still remain 2-3% above theri 50-day moving averages, implying the possiblity of more downside on this current pullback.

Housing-related stocks, including names like Pulte Home (PHM), Nationstar Mortgage Holdings (NSM), Ryland Corp. (RYL), MDC Holdings (MDC), Meritage Homes (MTH) and Fortune Brands Home & Security (FBHS) did well as housing starts and building permits both made 4-year highs. All are attempting to start new uptrends after moving sideways for a few weeks. All are experiencing strong earnings acceleration and increasing institutional sponsorship as the Building - Residential/Commercial group moves back up to #3 among all industry groups.

Pharmacyclics (PCYC), which has gone from $15 a share in January to a closing price yesterday of 69.78 so far in 2012, flashed a pocket pivot buy point that was also a clean breakout from a short cup-with-handle formation. We originally reported on PCYC to members of on August 15 when it issued a pocket pivot. While PCYC's earnings and sales are erratic, it is a biotech company with a number of drugs in its approval pipeline. The bio-tech group maintains its high-ranking among all Industry group at #5.

While there has been no market follow-through as of yet, investors can take measured positions in stocks showing actionable buy points with the idea of getting more aggressive should the market issue a follow-through. Otherwise, with three days of a rally attempt under its belt, the market situation remains fluid and investors should remain alert to the real-time market evidence.

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