Monday, November 19, 2012

Stocks Rally Hard as Hopium Spreads over Fiscal Resolution

Better than expected housing expectations and existing home sales helped boost the market’s rally off of Friday’s reversal. Volume on the day was lower and below average, but we have expected that with the Thanksgiving Holiday. AAPL was the star of the session rising 7% on the day. At one point the stock accounted for more than half of the day’s gains. At the Friday low we were quite oversold and when our fearless leaders expressed optimism we saw the market rally. Given the conditions of the market last week a relief rally is not out of the question. Day two of an attempted rally looks to be okay except for we are lacking the quality setups we normally see. We remain in sell mode, but we’ll obey the market if we get strong price and volume action. The VIX closed at its lows of the session as fear continues to evade this market. It is quite interesting to see the fear index where it is when we have AAII sentiment very bearish last week at 48.82%. Bulls weren’t seen at lows, but did come in at 28.82. We could debate as to why the VIX is so low and for us to have a meaningful bottom we need to see capitulation with some fear. Friday’s low might have appeared to be capitulation we didn’t see the surge of volume we’d normally see (excluding options ex volume). Perhaps this time things are “different” and the VIX will head into the single digits. We live in a QE dominated ZIRP world where anything is possible. The big story of the day was the move in AAPL stock rising more than 7% on the day. Last week the stock simply could not find any footing until Friday’s low. At this point a move back to the 50 day (629.65 currently) wouldn’t be out of the question given its big decline from September highs. The rally would likely bring on a “death-cross” where the 50 day undercuts the 200 day moving average. The last time this occurred was during the 2008 market meltdown. We aren’t predicting a similar situation, but with the stock severely over-owned and loved anything is possible. Day two of a new attempted rally after an extremely oversold condition is not out of the question. Given the low volume for the holiday we can see this market continue to push higher. Tomorrow we’ll get some more housing data along with Ben Bernanke speaking at 12:15 pm EST. Stay disciplined and do not try and be a hero here picking a market bottom.

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