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Market Pares Losses After Early Selling

John Darsie

The market follow-through on yesterday's sell-off in the morning, but was able to stop the bleeding in the afternoon to contain the day's losses. The Nasdaq was the biggest loser, falling 0.34%, while the S&P dropped 0.18%. The fiscal cliff continues to weigh, but the newer issue for the market is the escalating conflict in the Middle East. Israel has stepped up its assault on strategic targets in the Gaza strip, while Palestinian militants are peppering southern Israel with rockets.

We talked yesterday about how Apple (AAPL) showed a slight positive divergence to the market by holding above its recent pivot low, but today it broke below that lower range. Today's sell-off is not surprising based on the recent price action in AAPL, which has been markedly heavy. AAPL also today closed below the major support level of $528.66, which opens the door to an even bigger correction. There is some small support in the $515 area, but the next major support area is the breakout level from late last year around $420. We are not saying it will pull back that far, but when a stock breaks its 200-day MA and major upper support level, you have to take notice.

Facebook (FB) finished down 0.85% on the day, but help up reasonably well considering the strength of yesterday's move. After yesterday's IPO lock-up expiration, 800 million new shares became eligible for sale into the open market, but so far those IPO investors do not appear keen to sell. It will be interesting to see how FB responds over the next couple weeks.

A focus in the Virtual Trading Floor(R) today for Mike Lee was homebuilder stock Lennar (LEN). We have talked many times in our Off the Charts newsletter about the relative strength shown this year by the homebuilders, and although they have pulled in as well, this afternoon they got a nice bounce. LEN pulled in close to its 100-day MA and bounced hard back into positive territory.

Tomorrow is options expiration so there could be some pinning type of action. Factor in that Thanksgiving is next week, and it could be a throw-away type day for traders. Don't get too aggressive on a day like tomorrow and throw away hard earned profits.

*DISCLOSURES: Mike Lee has no positions