The NASDAQ Composite fell on higher volume yesterday, moving back below its 50-day moving average, while the S&P 500 fell on lower volume. Market direction is more susceptible to gap-up or gap-down action while the fiscal cliff issue remains pending, but it is not clear whether investors have anticipated a "Fiscal Cliff" solution to the extent that it is already priced into the market and could simply represent a "sell the news" phenomenon on any rally that might result from the announcement of such a deal. The Market Direction Model moved back to a neutral or cash position yesterday based on faltering technicals and underlying action in the market.
A U.S. government study Wednesday said applying a levy of 12.5% on the mining of gold and other precious metals, which is the benchmark government share applied to other resources, could help raise hundreds of millions in government revenue. SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) gapped down at Thursday's open. The "digging" of "tax mines" is more likely to be seen these days with the U.S. government scouring for ways to hike taxes at various levels. It is not clear, however, that this news led to the sudden drop in the precous metals when this news first hit Wednesday a few hours after the markets closed. Either way, the gap-down move in the metals yesterday did not see any rebound, and we consider this an ominous sign given that the Fed just announced "QE-to-Infinity-and-Beyond."
Initial jobless claims fell by 29,000 to a seasonally adjusted 343,000 in the week ended Dec. 8, putting claims at the second lowest level of the year. Claims are now below pre-Sandy levels and near their lowest point in about four years. The Federal Reserve has said if unemployment falls below 6.5%, it may begin to hike rates, but does not expect to hit this level until 2015.
The producer price index showed no signs of inflation. The Fed doesn’t see inflation hitting 2.5%, with the highest rate between 1.7% to 2%, also until 2015, but as we know this "inflation" number is mostly a statistical construct that has been revised scores of times over the past couple of decades to keep "inflation" appearing low, but consumers who are intimate with the cost of goods they purchase at the grocery store, the gas station, and other retail outlets know better.
Apple (AAPL) fell on higher volume as it looks to retest prior lows near 500. The stock is gapping down further this morning after news hit that only one person was waiting in line for an iPhone 5 in China where the phone is just being released. Further, it was reported in the Wall Street Journal that a jury found that AAPL infringed on three patents belonging to a company partly owned by Nokia Corp. and Sony Corp. of America. As we discusssed in our Short-Sale Set-Up report yesterday, we believe AAPL is much more likely to make new lows than new highs in the forseeable future, and those who insist on buying the stock on the basis of a "cheap" P/E are acting on foolish instincts.
Priceline.com (PCLN) broke down through its 50-day moving average yesterday as volume picked up. The stock gapped down through its 200-day moving average four days ago and we would look to short the stock on any movement back up towards the 50-day line at 520.26.
Google (GOOG) reversed yesterday off of its gap-up peak and closed very near to its 50-day line, but it remains above this key moving average. We did consider yesterday's gap-up move to be shortable, as we discussed in our Short-Sale Set-Up report yesterday, and we would certainly consider a breakdown back through the 50-day moving average as a reason to become more aggressive on the shorrt side with GOOG. One thing to keep in mind is that as AAPL falters this could be seen as a positive for GOOG and its Android platform, but we would still view any short-term "bumps" to the upside in the stock as shortable, using a maximum 2-3% upside stop.
The few breakouts that we've seen in this market have not led to any substantial gains, and when we look at moves in Gilead Sciences (GILD) or Celgene (CELG), which broke out on Monday, we note that these initially strong price moves have fizzled out. We also note that the pocket pivot in Polyone (POL) seen on Monday has also fizzled out with the stock moving below Monday's intra-day low - not a good sign.