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MLR - Premarket Pulse November 19, 2012

The general market indexes were finally able to muster up a bounce, reversing to close higher on Friday on higher, options-expiration volume. Negotiations regarding the so-called "Fiscal Cliff" got under way on Friday on what was seen as a positive note, providing some impetus for a short-term low. As well, the NASDAQ Composite undercut its July lows, a logical area from which the index could execute a "dead cat" bounce. We tend to see the fiscal cliff negotiations as causing some volatility in the ensuing weeks as both sides debate the issue. While an agreement is more likely than not, we would expect that this agreement will probably come closer to the end of this year's deadline.

With the indexes staging a logical oversold bounce, short-sale target stocks might also rally into areas of resistance over the ensuing days where they could potentially be shorted/re-shorted. In most cases, however, short-term bounces appear in order given the action in stocks like Apple (AAPL), which undercut the 522.18 low in its prior base by about 3%, setting up a logical "undercut & rally" situation as it reversed and closed slightly up on the day, while Google (GOOG) ran into and bounced off of its 200-day movng average which was our initial downside target on the short side for GOOG. AAPL's "undercut & rally" bounce occurred on the highest volume traded since March 2012. Wiith the market going "parabolic" to the downside the need to sell becomes rather obvious, setting up the potential for a logical bounce from Friday's lows. At this stage, and with short-sale targets reaching our downside objectives, we believe that investors should lay back and allow the bounce to play itself out for now as we move into the shortened Thanksgiving holiday week.

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