MLR - Premarket Pulse October 19, 2012

Published : October 19 2012 at 8:39 ET

The NASDAQ Composite logged another distriubtion day as it fell on appreciably larger volume thanks to technology stocks taking a hit after Google (GOOG) inadverdently released a disappointing Q3 earnings report and miss in the middle of the day. This sent the NASDAQ Composite plummeting to the downside as sellers reacted to GOOG's poor earnings report and subsequent price reaction. Other technology bellwethers such as Intel (INTC) and International Business Machines (IBM) also reported soft earnings the day before, adding further pressure to the market yesterday as IBM plummeted through its 200-day moving average. (AMZN) which had pushed up into its 50-day moving average reversed on substantial volume to close near its lows for the day. All in all, a very poor showing for leading stocks, which are, one by one, coming apart at the seams. Thus our Market Direction Model (MDM) has gone to a sell signal yesterday after the market close.

U.S. futures are a little soft this morning, perhaps the "calm before the storm." We note that Italian and Spanish markets are selling off about 1.5% each, roughly, as European markets again feel the strains of the continent's continued debt crisis that has been "solved" several times by means of so many fingers being stuck into the proverbial dike, and little more.

Precious metals continue to move lower as they look to test their 50-day moving averages, as the SPDR Gold Shares (GLD) moves to within 2% of the line while the iShares Silver Trust (SLV) is bidding this morning right at its 50-day line in pre-open trade. Should the precious metals find ready support at this critical moving average, then the 50-day moving average would be a logical place to add to or initiate a position in the precious metals with the idea that a violation of the 50-day line would constitute a quick and relatively nearby stop-out point.

Apple (AAPL) also fell on increasing volume yesterday as it continues to trade below its 50-day moving average. If current selling pressures in the general market and in technology stocks don't subside, AAPL could test the 200-day moving average in the weeks ahead. With the MDM on a sell signal and leading stocks coming apart, holding stocks on the long side remains risky and investors should exercise caution in this regard.

On the short side, we note that Tibco Software (TIBX) is on the verge of a downside "breakout" after two days of heavy downside volume. We would consider shorting the stock using yesterday's intra-day high at 27.64 as an upside stop. We would also keep an eye on GOOG as a breakdown through yesterday's intra-day low of 676 would constitute a 50-day moving average violation. On this basis, a rally up to the 50-day moving average today, up to the 711.06 price level, could be a shortable rally. using a 3% maximum upside stop.

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