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Minyanville's T3 Morning Market Call: Market Continues to Hold Up Despite Apple Weakness

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The banks could hold the "keys to the castle" this week.

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Futures are up a few handles this morning after House Speaker John Boehner's new offer to allow the Bush tax cuts rates to expire on incomes north of $1 million, which brings the total revenue offer from Boehner up from the existing ~$800 billion over 10 years to closer to $1 trillion. The two sides have another two weeks to negotiate, and some are now talking about a "two bill strategy." There has been lots of choppy action since last Wednesday's "push through failure" or "outside day." The S&P hit a high of about 1438 and closed around 1428 that day and then closed out last week around 1413.

We've seen multiple divergences, making it hard to sink your teeth into anything substantial. Strong stocks are being sold off a bit, perhaps due to some high earners looking to pay a lower capital gains tax. With the fiscal cliff looming, it's perceived that taxes will be higher next year. On the flip side, we are seeing some lower-tier, heavily-shorted, beaten-up stocks lifting. When you see those laggard stocks often leading the tape, it's often a sign of exhaustion in a rally and it makes commitment traders a bit cautious.

As far as key levels in the S&P, there is micro support around 1408-1411. This is where we are trying to bounce from today and if we can sustain a rally it will keep the action interesting into year-end. The bigger "line in the sand" is around 1397-1403. A close below this level and most intermediate-trend traders will be out of longs and lose interest in this tape into the end of the year.

If you don't want to alter your equity portfolio into year-end but want to speculate on price action using options, check out last week's webinar with Scott Redler and Jon Najarian (OptionMONSTER co-founder and CNBC Fast Money contributor), How to Enhance Swing Trading Returns With Options.

Tech has been very mixed.

Apple (NASDAQ:AAPL) is firmly on every trader's radar, and it's recent sell-off is even starting to leak onto Main Street headlines. This persistent weakness has certainly surprised and knocked the teeth out of retail investors and professional traders alike. The market has tried to do a decent job disconnecting AAPL from the indices as the broader damage has been more minimal. Many would have thought this type of sell-off in AAPL would have led to a bigger down move in the market. The real macro complexion change came when it broke below and failed to reclaim the 200-day moving average around $594. The most recent faulty signal (there have been many) was on December 5 as it engulfed most of the tradeable rally that had been in place since the November 16 reversal. Then on December 7, when it gave up all of that Thursday move, was the nail in the coffin.

Here is the article from the Wall Street Journal that quoted our analysis extensively: "Apple's Halo Cracked."

Anyway, the questions is: What now? Downgrades are coming in on AAPL, with the most recent coming from Citigroup last night. The stock tried to bounce off $505 on Friday and is opening below that level this morning. If it stays below $505 for 30 minutes or so, some sellers and shorts could get more comfortable to break it below $500. If we get a close below this level, there is micro support at $484-486. But ultimately, $435-445 is the macro major level it can see with time. I will continue to "actively" trade and not "swing trade" AAPL. Until I see something more clear-cut, I won't be too aggressive. I haven't touched AAPL since Wednesday. If it can get back above $505 for a period of time today and show some strength, I "might" consider it for a trade.
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Scott Redler is long BAC, JPM, X, NFLX, ZNGA. Short SPY.
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