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MLR - Premarket Pulse December 20, 2012

The major market indexes gave up their early morning gains and reversed to close lower on lighter volume relative to the prior day, but still above-average. In a press conference yesterday, President Obama mused that perhaps Republicans simply find it “very hard” to come to agreement with him, while a spokesman for House Speaker John Boehner called the White House “irrational.” But such heated back-and-forth is to be expected and may heighten fear in the markets as the deadline approaches. Speculation is clearly expanding given how the small caps are behaving as the Russell 2000 outperformed all other major indices on Wednesday and has overall outpaced NASDAQ Composite and S&P 500 over the last few weeks. The House votes today on Boehner's "Plan B" proposal for resolving the Fiscal Cliff, and a failure to pass this latest plan in the House would likely damage Boehner's credibility. As well, it would add fuel to the fire of fear regarding the increased potential of going over the proverbial Fiscal Cliff.

SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) continued lower on lower volume, both sitting on their 200-day moving averages after undercutting their November lows. The question is whether such an undercut of a prior low and movement right down to the 200-day line will result in any sort of supporting action along their current lows.

Oracle (ORCL) posted better-than-expected fiscal second-quarter results after the close on Tuesday, gapping up on huge daily volume. This would qualify for a buyable gap-up, except for the fact that ORCL is not that powerful of a leader given its tepid earnings growth of 19% and sales growth of 3%, with estimates for earnings growth in the next quarter at +6%. As well, its relative strength line is not confirming the breakout to new highs.

So far some breakouts and pocketpivots are holding up among stocks like BAC, GS, CRM, USG, RAX, AMZN, RYL, and others, and most remain within buying range. Intuitive Surgical (ISRG), after breaking out on Tuesday, got slaughtered on massive volume yesterday after a negative research report hit the market.

Apple (AAPL) ran into resistance around its 10-day moving average, and it will be interesting how much further, if at all, the stock can move higher after undercutting its November low and the 500 price level on Monday and reversing back to the upside. AAPL still suffers from a fair bit of overhead congestion caused by "trapped longs" who were induced to pile into the stock at higher prices on the basis of its "low" P/E.

Currently the expectations of the market are for an eventual settlement to the Fiscal Cliff, but it is not clear how much of this is already priced into the market, and it will be interesting to see how the market reacts once and if a resolution to the Fiscal Cliff is actually announced. This is the wild card in this market, and thus we feel investors should take a measured approach as they "feel out" the market's continuing uptrend.

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