After undercutting its July lows, the NASDAQ Composite led the way yesterday as the major market indexes followed up on Friday's bounce attempt that saw the S&P 500 retake its 200-day moving average. The action was helped along by an expression of optimism by President Obama regarding an agreement being reached over the so-called "Fiscal Cliff." As well, news that Egypt has stepped in to mediate a settlement of the escalating military conflict between Israel and Hamas added to the positive tone. Whether this bounce turns out to be the beginning of a meaningful turn in the market and new rally phase or simply a rally and bounce of the "dead cat" type depends on a variety of factors: 1) The announcement of "QEternity," which has done little more than result in a market downtrend that suggests markets are no longer responding well to quantitative easing, 2) the fiscal cliff issue which will probably have both sides posturing all the way up to the 11th hour, adding to the market's volatility, 3) economic news out of the US and Europe, and 4) any subsequent crisis situations developing in the ongoing European debt crisis.
In economic news, stock indexes continued to rally after the National Association of Home Builders/Wells Fargo index of builder confidence climbed to 46 in November from 41 the previous month.
The SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) ETFs rallied up into their respective 50-day moving averages on lower volume, and with both ETFs still remaining below this key moving average we continue to wait and watch for a bona fide buy signal to emerge from the present action.
Apple (AAPL) continued to move higher after undercuting the 522.18 low in its previous base, a logical area from whicht the stock could rally and also our downside profit target for any AAPL short positions. AAPL could potentially attract institutional money that is seeking a place to "hide" given its status as a dividend-paying "big-stock" that is valued at close to 10 times forward earnings. It remains about 20% below its peak price and firmly below its 200-day moving average nevertheless, and while it may provide a haven for institutions and those seeking to buy a "cheap" stock, we believe the potential for long-term upside in the stock is rather limited. The bounce so far appears normal given the macro-pattern AAPL is forming which so far is beginning to look like the right shoulder in a broader head and shoulders topping formation.
One bright spot in the market is Silica Holdings (SLCA) which blasted out of a cup-with-handle type of base on big volume yesterday. SLCA's fracking technology is now being used as proppants in unconventional oil and gas extraction. The CEO expects the company to expand on its dominant position in fracking techology. Earnings and sales have been very strong over the last few quarters and institutional sponsorship has increased since inception, a period of 3 quarters.
Given that the market is in only the second day of a rally attempt, with today being the third day, it is still too early to call any kind of follow-through, and investors are best served by remaining in cash until a firmer signal is established.