The major market indexes all suffered distribution yesterday with volume increasing as the indexes rolled over and closed near their lows for the day. The NASDAQ Composite ran into resistance at its 200-day moving average at around 2983 and reversed on higher volume. The general markets have come straight-up-from-bottom over the last several trading days so a pullback is not unexpected, but the lack of developing leadership leads us to believe that this is likely little more than an oversold bounce. While news currents may provide a rationale for the success or failure of any rally attempt by the market, we consider price/volume action to be the final arbiter, and so we remain focused on that as the market reaches a critical juncture in its oversold bounce.
In economic news, U.S. home prices rose in September for the sixth straight month, underscoring the notion that the housing market is recovering. The S&P/Case-Shiller 20-city composite posted a 0.3% increase in September to reach the highest level in two years, following a 0.8% gain in August. Home prices were up 3% from September 2011. That said, housing stocks recently corrected but this was partly due to a sharp run up over the prior months as well as a downtrending market. We would note, however, that vast "phantom" inventory remains in the housing industry, and the idea that housing will magically recover to bubble levels strikes us as similar to the thinking of those who thought dot.com stocks would recover and subsequently bought into the steep decline that occurred after the dot.com bubble market top in March 2000. That scenario, of course, did not play out well for those who believe that bubble market price levels are the norm rather than the exception.
Consumer confidence rose in November to its best reading in more than four years, rising to 73.7 in November from 73.1 in October, beating forecasts of 72.2, and is the best level since February 2008. The October reading was upwardly revised from 72.2. Consumer confidence is a lagging indicator, however, and so we do not consider it relevant to assessing the market's current price/volume action.
Apple (AAPL) came within a percent of its 200-day moving average yesterday but reversed to close down as buying interest waned. As a big-stock former leader, AAPL is an interesting phenomenon in that the fear that accompanied the stock's steep drop and climactic sell-off below the 522.18 low of its prior base suddenly turns into greed as investors who believe they have missed a seminal buying opportunity in the stock rushed in yesterday on news of strong holiday sales. Pre-open AAPL is trading down below the 580 level, and while the path may not be a straight line to the downside, we believe that AAPL has a better chance of retesting its lows of two Fridays ago than it does rocketing right back up to its former price highs and former glory.