I have not written a report on the market since I penned my report on November 17th…titled “NEAR TERM LOW BUT MAJOR TREND REMAINS DOWN” The reasoning for that report was simple…bearishness had reached very high numbers which almost always leads to a near-term rally but more importantly was the action on Friday Nov. 16 when the markets reversed up on very heavy volume. That was the kicker that told me markets were getting sold out. The reason I have not reported since is because I didn’t need to. The rally has continued with very little in the way of pulling in. Most cannot understand how markets can rally with the “fiscal stiff” staring it in the face as well as impending tax hikes. I feel it is much more simpler. How about the Fed continuing the printing of tens of billions of dollars on a monthy basis? How about Japan and Europe now printing tens of billions? Look no further than that. I say this because economic numbers are less than thrilling. Japan is back in recession but hey, if Bernanke could send markets higher because of money printing…why not follow?
But…the tape is very split. By my count 50% of stocks and sectors remain in poor shape with the other half helping the markets higher. This is not a recipe for a big move…but is much better than what we were seeing. On the good side, financials have had a bid, some biotech are acting well, a few industrial-types are in gear but on the other end, growth stocks remain comatose…and as you know, one of the most important things I watch is the behavior of leading growth stocks…and right now, that just ain’t happening.
I suspect we continue higher into year-end because that’s just what year-end does. There are just not many down Decembers as the painting of the tape into year-end makes itself apparent. I will be watching some important near-term levels in the days ahead to tell me this rally will continue. For starters, watch the S&P to see if it can get over 1424 with the next stop at 1434. Watch for the NASDAQ to get above the 3030-3034 area…and the NDX at 2702. Lastly, the Russell 2000 at 827 and then 830. Keep in mind, Apple’s stock has kept the NASDAQ and NDX from performing better because of its overweighting. Speaking of Apple:
A note on the almighty APPLE. I am not saying the final top for APPLE is in. I am saying that everything a great stock does when it finally does top out for good is SO FAR, happening with APPLE. It is the same thing that happened with the Intels and Microsofts back in 99-00. It is the same thing that happened with Ciscos and Dells.
For starters, all had monstrous runs. In case you didn’t know, since the announcement of the IPOD, Apple has rallied from about $15 to $700. Again, this is a monstrous run. One needs to know even the greatest stocks have a shelf-life. During these monstrous runs, more and more join on-board. More and more talk about it. The stock has a feel of omnipotence…that nothing could ever go wrong. But ultimately, things happen and things change. The company gets so big that growth has to slow…and when it slows, the underlying stock pays a penalty. But great stocks do not die quickly. They die over time. This is because on every drop, the belief is that it has to be bought…that it is just a correction and things will be just fine…because things have always been fine. The stock has always come back. Analysts refuse to say die. On every drop, they yell out that the stock is cheap, the market is over-reacting and reiterate their strong buy and price targets. Some shady analysts even try to goose the stock by issuing target raises for no reason. But when things turn, there is no fighting the big money. They are huge…and when they are on the move, you will get run over if you go against. And when everyone who wanted to buy…has already bought…there is nobody left to support the stock on the way down. In Apple’s case, it is arguably the most owned stock in the history of the market…with some funds leveraged up to their necks with the stock.
The first thing that must happen is the break of the 50 day…which occurred on 10/05. But that certainly is not the death knell as falling below the 50 day is a short term thing. The next problem was the inability to rally back above it. This led to real trouble when Apple broke below the 200 day on Nov 2. Nothing good can happen when trading below this long-term moving average. After a huge drop after breaking the 200 day, Apple then had the high volume reversal the market had on Nov 16 which led to a vicious rally. But…and it is big but…Apple miserably failed as it rallied BACK UP INTO the 200 day moving average. It then sold off viciously back towards the lows…where the stock seems to be holding in the low to mid-500s.
Currently, Apple’s relative strength has nose-dived versus the rest of the market. This has not happened often. The stock remains over-owned and continues to be defended. The market has rallied up but Apple remains near the lows. This remains poor action.
Fundamentally, earnings and sales have slowed down. The next earnings report for the holiday season comes in the 3rd week of January. There are worries about the maturation of the Iphone as there are probably just so many updated phones you can come out with. Also, there is vicious competition with their tablet. I would also not forget the fact of the early and tragic death of Steve Jobs. Again, I am not saying the stock is done. I am saying that SO FAR, everything I am seeing reminds me of all the tops of many great stocks that I have studied. Of course, new blockbuster products can change the playing field and the moves by the big money crowd but as of today, the best that can be said is the stock is deeply extended and stretched to the downside with decent support now in the low to mid-500s. You can access a chart of what has occurred with Apple at www.garyk.com.