Apple stock has been digesting a bit in the last three days after a potent bounce.
US stock futures point to a sharply higher open Thursday morning, with S&P (INDEXSP:.INX) futures up seven to eight handles. World markets rallied overnight on the heels of positive fiscal cliff talk out of Washington. Yesterday morning stocks pulled in sharply and the S&P looked set to potentially pull back to retest its 200-day moving average, but the optimism expressed by House Speaker John Boehner and President Barack Obama ignited a potent reversal that put us at the top end of the recent range above 1409. After the S&P opened below the recent mini-range yesterday we were watching to see if the 38.2% Fibonacci retracement level of the recent rally would hold. Indeed it did, and then we bounced with vigor to engulf the entire three-day range and close on the highs.
The next resistance level to watch on the S&P will be the 50-day moving average, which currently stands around 1423. There is a big travel range from yesterday’s low to this morning's likely opening print, so I would be cautious and perhaps trim some positions rather than try to chase stocks. Since the November 16 reversal/outside day, a portfolio approach with a strategic hedge (using a tier system) has been the most lucrative approach. "Red Dog Reversals" can be great cash flow setups, but they can also become major long-term inflection points.
The market has shown extreme sensitivity, in both directions, to comments about the fiscal cliff negotiations. With talks expected to continue today, keep an eye on the headlines. US Treasury Secretary Timothy Geithner is set to take on a more central role today, as he will meet with Senate Democratic Leader Harry Reid, Senate Republican Leader Mitch McConnell and others.
We also have a few data points to keep an eye on this morning. It's Thursday, so as usual we have weekly jobless claims, and then we also have third-quarter GDP growth numbers. GDP is expected to have risen 2.8% from July to September, up from initial estimates of 2%.
In corporate news, retailers will be in focus as several report same store sales for November this morning, including Gap (NYSE:GPS), Target (NYSE:TGT) and Kohl's (NYSE:KSS). Tiffany (NYSE:TIF) is down more than 8% pre-market after issuing disappointing earnings and cutting its full-year estimates.
Apple (NASDAQ:AAPL) is showing pre-market strength, currently up 1% ahead of the opening bell. The stock has been digesting a bit in the last three days after a potent bounce since that aforementioned November 16 reversal. In a special video yesterday on AAPL yesterday we talked about the possibility of buying the dip around the $574 level, and we saw a nice bounce from that area intraday. With AAPL set to open near the top of the that three day range, we could see it take off and re-test the 200-day moving average today. We will be watching AAPL closely today on the Virtual Trading Floor(R), where you can follow our commentary and trades transparently and in real-time.
Research In Motion (NASDAQ:RIMM) has been volatile this week, pulling back sharply Tuesday, following through to the downside before the open yesterday and then reversing hard to the upside with the market during yesterday's session. The roller coaster is continuing this morning for RIMM, which is up over 11% pre-market after Goldman Sachs (NYSE:GS) upgraded the company's shares from neutral to buy.
Don't make the same mistakes as the "herd" and chase stocks higher this morning. Following this up open, it would be healthy to see digestion the rest of the week to give us a launching pad for a follow-through rally next week.
Scott Redler is long GOOG, AAPL, QCOM, FB, BAC, MA, MGM. Short SPY.