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MLR - Premarket Pulse April 18, 2013

The market gave up on its one-day recovery attempt as all the major averages fell on higher volume, giving up all of the prior day's gains and, as in the case of the NASDAQ Composite, even more. The NASDAQ closed below its 50-day moving average while the S&P 500 was able to find support at the 50-day line. The number of distribution days continues to increase but in this quantitative easing environment, whenever selling pressure has increased, the market has found its footing, stabilized, and then moved to higher-highs. This is the third sharp sell-off in the indexes so far this year, and it remains to be seen whether the crowd, which has been conditioned to expect such recoveries, will be faked out this time. The Market Direction Model is taking all of this into account, and should selling pressure increase, it may switch to cash or sell. Should the market find traction, the MDM will remain on its buy signal.

Apple (AAPL) contributed to the weakness in the NASDAQ as it continued its downtrend with vigor, diving -5.5% and briefly breaching the $400 price level before finally closing just above it. AAPL is now flirting with the neckline of a much larger head and shoulders topping formation, and a decisive breakdown through the $400 level would likely take the stock down towards the lows of its prior base in the 350-360 price area. Whether the stock will do this prior to announcing earnings next week is an open question.

Internally, the market continues to deteriorate as the small-cap Russell 2000 and the NASDAQ Composite sold off twice as much as the Dow, which generally tends to mask the extent of downside in the indexes. Defensive groups are showing relative strength, another warning sign, and NASDAQ new lows also exceeded new highs for the first time in many months, thus the latest market sell-off is far weaker underneath the hood, so to speak, than it was in prior sell-offs so far this year. Thus investors should be operating with a high level of caution and an eye towards preserving profits should the market continue to break down further.

Gold is retaking the $1400/oz. price level this morning as reports of record demand for physical metal surface. Yesterday, April 17th, saw the U.S. mint sell more gold in one day that it has in the prior two months, confirming to some extent our view that the sell-off in the precious metals is a mostly paper affair as investors realize that physical metals are in short supply and may not be sufficient to properly back the vast amount of securitized and paper gold and silver that exists in the system. Silver has been the more popular of the two metals in physical form, and this morning a spot check of precious metals dealers show that a 1-oz. silver American Eagle coin is going for $28.34, and a 1 oz. silver Australian Koala coin can be had for $27.44, both far above the current silver futures price of $23.50/oz. at the time of this report.

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