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MLR - Premarket Pulse October 25, 2012

The major market indexes reversed after another gap-up opening, with the NASDAQ Composite falling on higher volume as it retests its 200-day moving average for a second day while the S&P 500 declined on lighter volume as it appears poised to test its 200-day moving average and support at the 1400 price level. This morning's economic data in the form of durables goods and jobless claims numbers appear to be a non-event, this morning's pre-open futures gap-up notwithstanding.

The Federal Reserve decided to continue its program of buying $40 billion in mortgage-backed securities and maintained its Operation Twist program in yesterday's policy announcement. The Fed also sees inflation over the medium term running at or below its 2 percent objective, but intimated that there is some inflation concern going forward. Markets initially sold off on the announcement, then swung back and forth before closing in the red. Silver and gold are catching a bid this morning, but remain below their 50-day moving averages in positions that are not offering any technical entry points currently.

AAPL looks to test support at its 200-day moving average as it closed up but in the lower half of its trading range on lower volume. Of course, the NASDAQ Composite and AAPL are highly correlated, so market direction will weigh heavily on AAPL's direction and vice-versa, as well as this afternoon's after-hours earnings announcement. AAPL appears on the verge of a late-stage base-failure, having already violated its 50-day moving average two weeks ago, and our best guess would be that if it is going to break down further it will do so on a gap-down following earnings today.

We note an inverted "bear" flag in Google (GOOG) forming after massive-volume selling took the stock down through its 50-day moving average last week following a disappointing earnings announcement. The selling on the 50-day break came on the largest two-day volume in the stock's recent past and likely forebodes a test of the 200-day moving average. We would consider shorting the stock here using a tight stop at yesterday's intra-day high of 687 since there remains the outside chance that the stock could reflex-rally back up to the 50-day moving aveage at 713.16 at any time. Regardless of what the stock does in the very short-term, we bellieve the stock is likely to move lower.

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