MLR - Premarket Pulse October 23, 2012

Published : October 23 2012 at 8:29 ET

Despite the market's late-day push into the green by the close, the market remains in a downtrend, and this morning's sharp drop in U.S. futures before the opening bell confirms this. The bottom line is that the market is essentially a "falling knife," and investors would do well to avoid trying to catch a falling knife and instead wait for a valid low and turn to be put into place. The S&P 500 broke down through its 50-day moving average early in the day yesterday and was able to close right back at the line, roughly in the same position as it closed at last Friday. The NASDAQ Composite had a stronger rebound but still remains well below its 50-day moving average with a test of the 200-day moving average looming large this morning.

We noted pocket pivot buy points in Silver Wheaton (SLW) and Regeneron Pharamaceuticals (REGN) yesterday, but such action in individual stocks merely highlights their relative strength. In this environment, whether such relative strength translates into truly sustainable upside price performance is doubtful until the market can right itself. Therefore we only note these pocket pivot buy points as indications that these stocks should be placed on one's buy watch list and only become actionable if and when the market begins to right itself.

Apple (AAPL) was able to bounce yesterday in anticipation of its "mini-Ipad" product announcement today, but it may be that any such rally may turn out to be a shortable event. Currently we see upside resistance in the 650 price area. Meanwhile the Market Direction Model (MDM) remains on a sell signal, and the continued breakdown in leading stocks as they crash through and/or violate their 50-day moving averages confirms that the current environment is far from an "all clear" signal.

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