The NASDAQ Composite Index closed below its 50-day moving average Friday as it tests the lows of its recent choppy two-week price range while the S&P 500 has pulled backed down just below its 50-day moving average. The market remains tentative here as we move into the year-end holiday season here, yet so far definitive evidence of a rally failure has not been forthcoming. The 50-day is about to cross below the 200-day on the NASDAQ which would establish a "death cross" which has bearish implications.
Economic news was generally positive. Industrial production, the consumer price index and the Markit manufacturing index were better than expected. The consumer price index dropped a seasonally adjusted 0.3% last month, the Labor Department said Friday. Economists had expected a 0.2% decline. Excluding food and energy, core consumer prices edged up 0.1% in November. The Fed doesn’t see inflation hitting 2.5%, with the highest rate between 1.7% to 2%, until 2015, but as we know this "inflation" number is mostly a statistical construct that has been revised scores of times over the past couple of decades to keep "inflation" appearing low, but consumers who are intimate with the cost of goods they purchase at the grocery store, the gas station, and other retail outlets know better.
In Europe, the euro-area manufacturing index contracted for an 11th straight month in December but was slower than expected. Europe remains mired in recession as does the UK. The US may be soon to follow, especially if the fiscal cliff issue is not sorted.
In China, the manufacturing index hit a 14-month high, remaining in expansion mode for the second straight month exceeding views, sending the Shanghai Composite up 4.3% in heavy volume. China's stock market led the way in 2006 and 2007 so could be set for another launch sometime in 2013.
Apple (AAPL) is getting a little bump pre-open as a downgrade and lowered price target (to $520) coming out of Citigroup is being countered by one analyst who is reiterating his $1,111 price target while both Morgan Stanley and Barclays also come out defending the stock. From our perspective, buying AAPL shares here as the stock forms a head and shoulders formation is not worth the risk of further downside.
Going into year-end the market may be subject to various cross-winded news headlines relating to the "Fiscal Cliff" and so our inclination is to keep plenty of dry powder around while keeping commitments on the long side, if any, to a minimum. The situation remains fluid, however, and for more real-time commentary and investment ideas, both long or short as the market necessitates, please refer to www.virtueofselfishinvesting.com.