The NASDAQ Composite Index led the major market indexes down yesterday on light, below-average volume, droppoing -0.74% vs. the S&P 500's -0.48% drop and the Dow's -0.19% slide. News of a weak holiday retail season sent a number of retail stocks diiving as breakouts and pocket pivots among nascent leaders continue to fail. Nascent leaders like big-stock NASDAQ name Amazon.com got smacked on heavy selling, causing it to violate its recent 553-554 breakout point from a cup-with-handle base, while Michael Kors (KORS), which had recently issued a pocket pivot buy point along its 50-day moving average, slashed through its 50-day moving average on the downside as selling volume came in well above-average. Failed breakouts and failed pocket pivot buy points among potential leaders can be considered a clue as to the dicey nature of this current market rally. The NASDAQ found support along its 50-day and 200-day moving averages, but it's 50-day line has now crossed below the 200-day moving average for a bearish "black cross."
With a Fiscal Cliff deal nowhere in sight, investors are understandably nervous. The Treasury Department will begin making what amount to accounting chicanery in order to allow for about $200 billion in "head room" once the U.S. hits its debt ceiling at the end of the month. Congress must raise the debt limit or the U.S. will default on its obligations, and the Treasury's moves will only provide a short-term solution.
Apple (AAPL) continues to act in weak fashion as the stock has severely underperformed the market in December. AAPL is hovering above a possible neckline in an overall head and shoulders type of topping formation. A high-volume breach of the $500 price level would be a strong signal of further downside to come, and for now we would use the 10-day moving average, currently around 523-524, as a trailing stop for any existing short positions in AAPL.
Among other short-sale set-ups we see, Alexion Pharmaceuticals (ALXN) is forming what appears to be a possible peak on a right shoulder within an almost classic-looking head and shoulders topping formation. We view the stock as shortable using the 50-day moving average at 95.78 as a guide for an upside stop. Optimally, any rallies up to that level would be considered shortable.
We continue to believe that caution is warranted in this market as potentially leading stocks struggle to make any consistent and material upside progress.