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MLR - Premarket Pulse September 11, 2012

Mario Draghi’s speech helped fuel a market rally last week, but a decision is due Wednesday from Germany’s Federal Constitutional Court. The court will prepare a ruling that could determine the fate of the euro zone’s permanent rescue fund.

The decision centers on challenges to Germany’s participation in the 500 billion euro ($639.3 billion) European Stability Mechanism, or ESM. Some say the treaty behind the ESM robs Germany’s parliament of its constitutional authority over the country’s budget, but others say the constitutionality of the ESM was thoroughly vetted at its inception and that the high court has never viewed the course of European integration as unconstitutional. German Chancellor Angela Merkel’s spokesman echoed this sentiment on Monday when she said the government was “convinced” the ESM is constitutional and that it expects the court to agree.

Over in the US, the markets wait for the Fed's decision this Thursday. There are trenchant arguments against the Fed making a formal QE3 announcement this Thursday. While inflation is within the Fed's 1-2% target which gives them headroom to print dollars, do they really have to make a formal announcement now given the somewhat improved economic data over the last several weeks?


Technicallly the market is pulling back after breaking out to higher-highs last Thursday, although some leaders did come under pressure yesterday. Mellanox Technologies (MLNX) dove towards its 50-day moving average, where it found support, but we would see the 10-day moving average violation as a sell signal for the stock using the 7-week rule, while Michael Kors Holdings (KORS) got tagged after announcing a 22-million-share secondary offering. This type of selling after a secondary announcement is generally not an issue. Apple (AAPL) also saw some above-average volume selling yesterday as it dropped below its 10-day moving average on volume that was 26% above average. However, a sell signal on AAPL would only be generated if it violated its 50-day moving average, currently down around 627, given that it does not show a sufficient tendency to follow its 10-day moving average.

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