MLR - Premarket Pulse October 22, 2012

Published : October 22 2012 at 8:09 ET

Friday October 19, 2012 marked the 25th anniversary of “Black Monday,” the market crash of October 19, 1987. The NASDAQ Composite commemorated the event by diving 2.19%, which is still a long ways from the 22.61% dive-bomb that the Dow produced in 1987. The NASDAQ broke to new lows on Friday as it makes what appears to be a run for its 200-day moving average and putting and end to its three-day rally attempt. Options expirations may have accounted for some of the increase in volume on Friday, but volume came in much heavier than normal, even for an options expiration day, thus we would tend to take the market evidence at its face value. Opex is not enough of an alibi since volume came in much, much heavier than normal, even for an options expiration day. The S&P 500 did not fare much better, dropping -1.66%, and coming to rest at its 50-day moving average.

In economic news, existing-home sales fell 1.7% to a seasonally adjusted annual rate of 4.75 million from a slightly upwardly revised rate of 4.83 million in August, the National Association of Realtors reported Friday. Economists had expected a rate of 4.8 million for September.

Precious metals ETFs, the SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) both continued lower on higher volume that was well above average with GLD just at and SLV below their respective 50-day moving averages. While a Romney victory would slow or stop quantitative easing from the Federal Reserve, QE still exists in Europe and in the UK. That said, Romney putting an end to QE would certainly have an impact on stocks, precious metals, and other commodities. We await some sign of strength in either the GLD or SLV as they test and move around their 50-day moving averages before looking to re-enter the precious metals, if at all.

A slew of negative earnings surprises and weak forecasts overall from juggernauts including IBM, INTC, GOOG, MCD, and GE took the markets lower. That said, energy, materials, financials, and utilities all held their ground, posting more than 1% gains for the week, contrasting the big slide in the general markets and creating something of a group divergence that may imply some rotational action.

We have speculated over how Apple (AAPL) would finally top during our live market webinars, and we may be observing a late-stage failed-base set-up in the stock now that it has violated and moved well below its 50-day moving average. We discussed this violation in our morning missive of about two weeks ago, when AAPL first closed below its 50-day line on October 5. AAPL's breakdown also began the formation of a “mini” head and shoulders formation as we discussed in our live market webinars where we also pointed out that one could short AAPL at that point using the 50-day line as a quick upside stop. Since violating the 50-day line AAPL has only been able to muster up a short rally into short-term resistance along the “neckline of the mini-H&S formation. AAPL failed right there three days ago following a bounce off the top of its prior base at the 624-625 price level, and that failure has now resulted in the stock starting to fail on its August breakout as heavy selling volume sent the stock below the 610 level on Friday. In July, we also discussed the potentiality of AAPL coming out of a late-stage base, and so far the action indicates that this may be the case. So goes AAPL, so goes the NASDAQ, and both appear headed for their respective 200-day moving average, today's pre-open futures bounce notwithstanding. We tend to view today's pre-open futures bounce as setting up a potential shorting opportunity.

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