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MLR - Premarket Pulse December 18, 2012

The Market Direction Model (see www.selfishinvesting.com) switched to a buy signal just after yesterday's close as final volume tallies showed a follow through day in the NASDAQ Composite. Other major indices also rallied on higher volume. Both the S&P 500 and NASDAQ Composite are above their respective 50-day and 200-day moving averages. President Obama and House Speaker John Boehner met Monday for talks on the fiscal cliff issue. Even though there was nothing definitive, the market took it as a sign of progress which overshadowed economic news on the Empire State manufacturing index after it showed a drop to -8.1 in December from -5.2 in November. Economists expected a reading of zero.

The financial select sector index ETF XLF rallied over 2% on appreciable volume with stocks such as Goldman Sachs (GS) and Bank of America (BAC) putting in pocket pivots (for complete details on pocket pivots, go to https://www.virtueofselfishinvesting.com/pocket-pivot). Financial stocks have overall exhibited higher relative strength than much of the market.

Other pocket pivots observed yesterday occurred in U.S. Gypsum (USG) and big-stock NASDAQ name Intuitive Surgical (ISRG). Among other big-stock NASDAQ names, we note that Amazon.com (AMZN) is forming a cup-with-handle and has traded very tightly over the past 2-3 weeks. Keep an eye out for a pocket pivot move on a possible breakout from this handle on AMZN.

Apple (AAPL) undercut the November low at 505.75 a bit more decisively today, trading under the 500 level for a period of time in pre-open trade this morning as we were looking for based on our follow-up Short-Sale Set-Up report of last Friday. The stock closed at the peak of its daily range on above-average volume, and so one must consider whether the short-term downside in the stock is mostly wrung out of the stock, and it must now spend a period of time building another right shoulder, at the very least. This would make sense given the technical position of the stock and the shift in sentiment as reflected by a number of analysts downgrading their price targets for the stock, with the lowest coming in at 520. We can congratulate that analyst for that one, since the stock is already trading above his price target with AAPL shares bidding 526-527 pre-open at the time of this writing.

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