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Minyanville's T3 Morning Market Call: Market Still Needs Rest as Crosswinds Blow

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Overall, markets are showing commitment but not much momentum.

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US stock futures pointed to a slightly higher open Wednesday, following world markets higher overnight. The Shanghai Composite was particularly strong while we slept, surging 2.8%. Well-known technical analyst Tom DeMark opined yesterday that Chinese markets could rally as much as 48% in 2013.

Yesterday the S&P absorbed Monday's bearish outside reversal well, holding its 25% Fibonacci retracement level and 10-day moving average. The low of the day was 1403, which is the short-term pivot traders will be watching if we fade this morning. The longer we stay above this level, the higher the probability we test the 50-day moving average around 1419. However, the trading oscillator remains at "overbought" so expect the market to at least rest to work off that reading.

Overall, markets are showing commitment but not much momentum. The trade has also been a bit erratic in recent days. Not all stocks are created equal and this is becoming another stock specific period in the market. As we head into the last few weeks of the year, there are some crosswinds in the market that are making traders cautious.

The most unique factor in this market right now is obviously the fiscal cliff situation. We have seen several companies issue special dividends to shareholders in order to get money out the door before tax rates inevitably go up for the wealthiest Americans. There have also been suggestions that investors will sell winning stocks more aggressively in 2012 before capital gains taxes potentially go up. These factors could offset any potential gains from a "Santa Claus Rally." Although the market can go higher from here, it doesn't feel like there is much meat left on the bone for longs. The real meat of the trade came after the November 16 reversal.

If you are looking for the best acting stocks right now, look no further than Amazon (NASDAQ:AMZN). The stock held in better than the market on Monday's reversal, then erased those gains yesterday. I expect AMZN to be near new highs by early 2012.

Facebook (NASDAQ:FB) saw only small downside yesterday following Monday's potent reversal, and today it is opening higher on news that it will be added to the Nasdaq 100. While Monday's bearish reversal will slow momentum for FB and could lead to a period of consolidation, the stock is showing the most sustained strength it has seen since going public.

Apple (NASDAQ:AAPL) is opening lower this morning after Nokia (NYSE:NOK) beat it to a lucrative China mobile deal. AAPL was one of the strongest stocks since November 16 until the last few days when it has lagged a bit. Yesterday the silver lining was that at least AAPL held the $572 support level we had highlighted previously, but it looks to be opening below that this morning.

Take it slow in this area and wait for the market to tip its hand.



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Scott Redler is long BAC, INTC, AAPL, YHOO, DDD. Short SPY, FB.
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