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Apple Sees Sporadic Price Action; Molycorp Ready to Make a Strong Move Higher

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Given AAPL's heavy weighting in the S&P 500 and Nasdaq, its price action has major implications for the market as a whole. Plus, a look at MCP's chart.

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Markets opened flat this morning, but were met with aggressive buying from the get-go. Rumors have been circulating that President Obama and Speaker John Boehner are getting closer to a compromise regarding the fiscal cliff negotiations, and this could be one reason why we're seeing equities lift today. At present levels, the Russell 2000 (INDEXRUSSELL:RUT) is leading other indexes, and is up about 1% on the day. The S&P 500 (INDEXSP:.INX) and Nasdaq (INDEXNASDAQ:.IXIC) are slightly lagging, both currently up about 0.8%. Bonds are experiencing a serious sell-off today, currently down about 1%, while commodities are largely flat to weak.

Price action in Apple (NASDAQ:AAPL) has been sporadic today. Prior to the open, AAPL was downgraded by Citigroup and the the stock dipped below the $500 level in premarket trading. However, that weakness was short-lived, as the equity has rallied back above 510. Going forward, the $500 level could be a key battleground for bulls and bears, and given AAPL's heavy weighting in the S&P 500 and Nasdaq, its price action has major implications for the market as a whole.

Chart of the Day

Molycorp (NYSE:MCP) is a company that explores for and mines rare-earth minerals used in many technology components. After a very strong rally since its IPO, the equity experienced a dramatic sell-off as bullish sentiment toward the sector waned, and in fact, has become outright bearish. However, at the present juncture, MCP looks ready to make a strong move higher.

The company recently retook its declining 50-day moving average, which has guided it lower since this spring. Going forward, this trendline could act as support. In addition to the technical rebound, MCP has seen a dramatic increase in short interest. Currently, about 38% of the equity's float is sold short. In fact, the current level of shares sold short is an all-time high for the equity. Should any positive news surface and/or MCP continue its bounce higher, this creates the potential for strong short-covering rallies. I would look to buy MCP here and target the 12.50 level, with 15 being an extended target. A close below the 50-day moving average (currently at 9.48) would be a signal to exit the position.



What I'm Expecting

I'm expecting choppy price action with an upward bias. This time of year is historically slow, as many major players in the market are either on vacation or disinterested. That said, volumes should be low from now until 2013. Should any major news surface between now and then, intraday price action could be very volatile as a result of this low volume. I continue to prefer stock picking over index trading. Key levels to watch going forward are 1385, 1400, 1425, 1440 and 1460 on the S&P 500. Additionally, keep an eye on the 1000 level for the S&P Midcap Index. (NYSEARCA:MDY). This psychological price level has been key for the past few months.

This article by Bryan Sapp was originally published on Schaeffer's Investment Research.

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Twitter: @schaeffers
No positions in stocks mentioned.
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