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Digestion Constructive for Market

John Darsie

US markets finished around the flat line Tuesday, recovering from some early afternoon weakness. We talked both in yesterday's Daily Recap and today's Morning Call about the need for rest after two volatile sessions. Friday we got a powerful Red Dog reversal and yesterday we strong upside follow-through. Especially during a shortened holiday week, it was prudent to expect digestion. If you missed yesterday's move don't try to chase higher prices, but rather wait for another calculated set-up.

Overall, today's pause can be considered very constructive for the bulls. Last night after the close Moody's downgraded France, which triggered some overnight weakness in foreign markets. However, US markets shrugged off the move, which brought Moody's rating in line with S&P's at Aa1.

Another downbeat headline shrugged off by the market this morning was Hewlett-Packard (HPQ) earnings. The PC maker reported an $8.8 billion impairment charge relating to accounting 'improprieties' with its acquisition of Autonomy. HPQ opened sharply lower and was not able to build any momentum during the session. The stock finished the day down 12%, at its lowest levels since October 2002.

Apple (AAPL) also rested after yesterday's potent rally, dropping 0.8%. AAPL's resurgence is a very positive development for the market, which had been suffering a crisis of leadership over the past two months. The next micro resistance point for the stock sits at the beginning of the recent gap at $574.54. I expect AAPL, over the next few weeks, to rally back into its 200-day MA, which currently sits at around $596 but is starting to curl down.

Fed Chairman Ben Bernanke emphasized the importance of addressing the fiscal cliff in a timely manner in comments today to the New York Economic Club. The Bernanke-led FOMC has been aggressive with monetary policy measures aimed at stoking the job market, but he feels uncertainty about the impending spending cuts and tax increases are damaging the economic recovery. In general, Bernanke feels Washington has not been aggressive enough with fiscal policy to spur growth.

The SEC today announced allegations today into what would be one of the largest insider-trading schemes in history. Hedge fund CR Instrinsic Investors, which is owned by Steven A. Cohen's SAC Capital, allegedly avoided heavy losses and generated large profits based on a tip from a University of Michigan neurologist regarding a clinical trial for an Alzheimer's drug developed by Elan Corp. (ELN) and Wyeth, which is now a subsidiary of Pfizer (PFE).

If you are sitting around on the couch this week digesting Thanksgiving dinner, dive into T3Live's Free Online Trading Course. The program contains 30 days worth of trading education, and is great for both new traders looking to kick-start their education and experienced traders looking to hone their skills.

*DISCLOSURES: Marc Sperling is long AAPL, AOL, RIMM, SRPT, PCLN, FIO, UA, FB, FB calls, ANTH, RIMM calls, AAPL calls, YHOO, SHOS.