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MLR - Premarket Pulse December 10, 2012

The major market averages had a relatively quiet day on mixed action and volume. The S&P 500 was up slightly while the NASDAQ Composite was down. The Dow Jones Industrials Index diverged as it was up more than twice as much as the S&P 500. In fact, the Dow has recently taken over as the leading index among the major market indexes as it has moved to a material higher-high in this rally off the lows of November. The NASDAQ Composite lags with its Friday close just below the 200-day moving average while the S&P 500 closed slightly above it’s 50-day moving average. We remain cautious in the general market and the Market Direction Model reflects this by remaining on a cash / neutral signal at the present time.

Friday's jobs report was met with bullish premarket action as the futures jacked to the upside pre-open, but the major market indexes gave up most of their early morning gains in mixed action. "Job growth" remains a largely manufactured phenomenon with payrolls rising 146,000, above the 80,000 expected, while unemployment fell to 7.7% vs. an estimate for 8%. However, this report was not so bullish when one scratches beneath the surface. October payroll numbers were revised 19% lower than first reported, and September payroll numbers were adjusted 11% lower. Further, the declining unemployment rate was largely the result of a reduced employment participation rate as 350,000 individuals left the work force. To add bearish fuel to the fire, the University of Michigan consumer sentiment survey missed expectations by a wide margin, falling to a one-year low. With more taxes and more regulation looming ahead for the economy, we fail to perceive any potential catalyst for a sustained bull market.

Apple (AAPL) continued to perform in weak fashion as it made its lowest close since November 15th and closed down Friday, logging a -9% decline for the week. We beliieve those who think AAPL is some sort of "cheap bargain" that has a right to move higher and so it is simply a matter of looking to buy once the stock has "washed out" are sorely mistaken. In our view, the odds of a major top for the stock remain very high, and at the very least the stock would need some time to "heal" and build a new consolidation from which it might break out of in the future. But for now, AAPL looks as if it is in the process of building a large head and shoulders formation, not setting up to move higher on the basis of what many feel is a "low" P/E. We continue to believe that the stock will eventually test its recent November lows, and that potential certainly exists for the stock to move even lower over time.

Precious metals are finding a bid this morning, with silver regaining its 50-day moving average based on the pre-open action in the nearest silver futures contract. Investors should remain alert any pocket pivot buy point developing along the 50-day moving average in the iShares Silver Trust (SLV). Gold, on the other hand, remains well below its 50-day moving average but has found consistent support around the 1700 price level. With debt levels around the globe continuing to build, and given that the Obama Administration is now pushing for the ability to raise the U.S. debt ceiling without Congress' approval, we believe that the long-term trend for precious metals remains intact. Ultimately, we believe that the only solution to the global sovereign debt crisis will be continued devaluation of both the Dollar and the Euro over time, and this can only be bullish for the precious metals long-term. At this point it is just a matter of waiting for a bona fid buy point to emerge again in either the SLV or the SPDR Gold Shares (GLD).

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