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MLR - Premarket Pulse October 16, 2012

As we discussed yesterday in our pre-open missive, both the NASDAQ Composite Index, which was resting along the 3040 level and the lows of the "handle" from which it broke out of in early September, and the S&P 500, which was resting right at its 50-day moving average, were in a logical position from which to stage a reaction rally following six days of selling off, including the high-volume reversal of two Fridays ago. Yesterday's action saw both indexes close firmly higher on higher volume for the first time in almost 2 weeks. As has been the case throughout the summer, the action moved the indexes just far enough to trigger a neutral signal in the Market Direction Model, at which point the market promptly rallied. With the futures up strongly pre-open this morning, the market is looking at a possible second day of a rally attempt, but we would not be able to see a follow-through day until at least Thursday, assuming the market is able to maintain the rally attempt for at least until then. Meanwhile, it is a simple matter of remaining cautious and vigilant for the next true opportunity to enter the market again on the long side.

Both the SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) precious metals ETFs met up with their 10-week moving averages after selling off again yesterday, and this morning both are trying to find support along this key moving average. We would note, however, that the 50-day moving averages for both are still just a hair below where the GLD and SLV closed yesterday. The pullback in the metals occurred yesterday despite Fed Chief Ben Bernanke talking up quantitative easing (QE3) during a speech in Japan on Sunday, and the IMF urging Europe to buy more bonds, another form of quantitative easing. The drop in precious metals could be a digestion of the sharp gains both gold and silver had from August to September, thus pullbacks to the 10-week or 50-day moving average, should they hold reasonably well, may provide what are likely decent lower-risk entry points to add to or initiate a position in the precious metals ETFs given the overall robust tone of quantitative easing coming from both sides of the pond.

Meanwhile, among stocks, we do not see much that is actionable, although some constructive action can be seen in something like Michael Kors Holdings (KORS) which has held very tight over the past four weeks as it remains right at and/or above its 10-week and 50-day moving averages. This is the sort of action during this general market pullback that puts a stock like KORS at the top of our buy watch list.


[Note, all Tuesday-Friday Premarket Pulse reports are emailed to members only thus may include notes on recent MDM signal changes and on individual stocks that were actionable.]

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