The general markets had another range bound day on light volume as the action remains relatively quiet. Following the huge gap-up day on January 2nd, the market has moved in a generally sideways pattern over the past two weeks, and for the most part this looks constructive if not terrribly exciting.
Price inflation as reported in the CPI was nonexistent in December, while industrial output grew at a moderate pace. Home builders polled by the National Association of Home Builders revealed a continuation of bullish sentiment.
A few leading stocks have run into trouble, such as Regeneron Pharmaceuticals (REGN) which gapped down for a second time on Tuesday but did not recover as buyers failed to step up and support the stock. REGN closed below its 50-day moving average yesterday, and based on pre-open prices this morning is now in violation of the 50-day moving average, making the stock a sell.
Apple (AAPL) had a mini-gap higher, coinciding with one prominent technical analysts' call of a bottom in the stock and the potential for a "22% rally" that would take the stock up to the 600 price level. On Tuesday, AAPL was acting like a textbook "breakout" to the downside through the neckline of its head and shoulders pattern, but this all reversed yesterday as the stock moved back up through the neckline. What likely works against short-sellers in AAPL coming after the stock on the valid basis of its downside neckline breakout on Tuesday is the fact that the market remains in an uptrend. Such a breakdown, should it occur in either a market that is correcting, or a market that is beginning to roll over after a rally phase, would normally continue lower. However, given that the market remains in a bullish mode, the odds of success for short-sellers, even with the most textbook of short-sale set-ups, are not as high as they would be in a less posiive general market environment. So far the stock appears to find resistance at around the 507.50 intra-day high of Monday's gap-down day, and thus would be our maximum upside trailing stop on any AAPL short-sale positon. With earnings set to be announced next Wednesday, the stock may simply remain choppy until then, although bold short-sellers could alwasy test the stock at current levels using the 507.50 level as a guide for an upside stop, although we are not convinced that this will meet with any significant short-term success as investors make their respective bets on AAPL going into earnings.
We have seen little in the way of new buy points in potential leading stocks over the past three days, and this is consistent with the market quieting down as it has. In the meantime, there is little that is actionable outside of sitting with existing long positions that continue to work and act well as we gauge just how much upside progress can be made in this current environment.