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MLR - Premarket Pulse December 7, 2012

The general markets were up slightly on weaker volume with the NASDAQ Composite Index barely regaining its 200-day moving average. Meanwhle both the NASDAQ Composite and S&P 500 remain under their respective 50-day moving averages. While December can be a seasonally strong month, the lack of leadership is pronounced and increasing the odds of this rally finaly resolving as a dead cat bounce and oversold bounce after the general markets sold off 9% to 12%.

In economic news, the European Central Bank (ECB) lowered its outlook for the eurozone's economy. The ECB predicts a GDP contraction of 0.3% next year compared to its previous forecast of 0.5% growth. Given how markets are correlated, any prolonged recession out of Europe would put a damper on other markets.

Apple (AAPL) retested its prior low as it came within 2% of the 505.75 level hit one month ago. As the sell-off became climactic on the downside early in the trading day the stock finally washed out and reversed back to the upside to close higher on big volume. It remains firmly below its 200-day moving average and appears to be in the process of building a potential series of right shoulders within a broader head and shoulders type of formation. We do not consider the stock to be "cheap" or a buyable situation given its weak technical condition. AAPL is a beloved name, and many investors who missed the stock's long-term upside move will feel compelled to buy the stock as they see it come down, resulting in bounces along the way as we saw yesterday. However, we consider these bounces to be potentially shortable affairs, and we would look for resistance in the 550-560 area on any continued bounce from here.

Lululemon Athletica (LULU) was up on massive volume after the fitness retailer reported quarterly EPS up 44% vs. the 37% consensus estimate. Revenue climbed 37% to $315.6 million, well above the $302.3 million estimate. The stock initially closed down but reversed on what was a massive pocket pivot volume signature. It is not clear to use that this is a buyable pocket pivot type of move given the stock's position within its base.

The market could be in a position where the rally and oversold bounce continues to hold until a firm announcement regarding any solution and compromise to the Fiscal Cliff debate is forthcoming. Futures are up this morning in reaction to the monthly BLS jobs number which did not show the weakness that was expected given the effect of Hurricane Sandy on the Northeast.

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