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MLR - Premarket Pulse January 7, 2013

Markets finished up on lower volume on Friday. The Russell 2000 has been outperforming compared to the NASDAQ Composite and S&P 500 as small caps tend to do well in bullish "risk-on" environments. So far the indexes are holding up tight as their action implies more of a pause than a reversal.

The SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) both gapped lower on news that more Federal Reserve members wanted to phase out quantitative easing sometime in 2013, but managed to claw back to close near the top of their trading ranges on the day. While QE3 may get phased out, it is alive and well for now, as is QE from the European Central Bank and the Bank of England, so may continue to prop markets higher in the meantime, especially now that the fiscal cliff issue is behind us, even though the agreement on the spending side is far from settled. That said, the tax rate side is far more important to investors, thus with knowing tax rates on dividends and capital gains, the markets may be free to trend higher from here. Investors should not, however, feel compelled to rush into the market here in full force, since if 2013 is to be a sustained bull market year there will be more than ample opportunities to enter positions in potential leading stocks, and selectivity is always called for in environments like this. As buyable situations present themselves, we will be sending out reports as needed.

Apple (AAPL) continues to well underperform the general markets, and is set to gap down again this morning. As one of the most-loved, "bullet-proof" stocks in the market before it topped several months ago, it is an interesting phenomenon to study as it proves that big, leading stocks often do top when all the news is about as rosy as it can be. Since it is weighed fairly heavily in the NASDAQ-100 and NASDAQ Composite, it is causing these indices to underperform against the other indices. AAPL announces earnings on January 23, but a breach of the neckline at the 500 level, roughly, would indicate that another downleg in the stock is likely at hand.

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