Apple Investors, Screws are Tightening
I hate to be the bearer of bad news. I simply can’t bear to watch what is happening out there, we’re barely hanging on by the skin of our teeth. I can list dozens of reasons why I hate bear markets, but the biggest is that it makes me feel on edge, nervous, ill at ease. The other big reason is that it’s much more difficult to invest in a bear market, especially one that has been marginalized by investors. How else can one explain the low $VIX reading as we near March lows?
As an Apple enthusiast my company is on the verge of a transformative event, expanding into a world market place, with a disruptive mobile computing ecosystem. I say ecosystem instead of product, because it’s not just about the iPhone, it’s the compendium of supporting characters, from 3rd party developers, to the App Store, iPhone and iPod Touch accessories, a born-again OS X (Snow Leopard), 3G and GPS. But with this bear market breathing down our necks, I’m afraid the world-wide introduction will be muted to some degree.
Let’s take a look at the market. We had a spectacular Bull run from the March lows to nearly topping previous highs, only to be snatched and dragged down. For a time it appeared to be a simple correction, but time after time, the markets failed to break away. Now the Dow has dropped below not just March Lows, but January lows as well. The S&P 500 is hanging on by the proverbial thread. And that thread nearly came unwound on Friday (July 3) falling below critical support at 1256, only to be propped up at the last minute by some brave Bulls.
Both the Naz and S&P have been teetering on the verge of breaking through major resistance. Oil is their nemesis on the other end of that seesaw. If Oil breaks through $150 a barrel, that could knock both the S&P and Naz of their perch and fall into the abyss. Once they do, that critical support will become strong resistance, making it very difficult to recover. And I’m not encouraged by market internals either. Sometimes you can make the argument that there’s a good foundation, or a good base from which to prop ourselves up. But not in this case, the foundation is rotting. The Advance-Decline line is about as bad as one could imagine, and new lows have outpaced new highs for several weeks now, with now end in site.
Then you have the TA radicals talking about the Hindenburg Omen, named after the Hindenburg Disaster. A technical analysis scenario that predicts a stock market crash. Apparently, the technical factors have aligned themselves recently, such that the chances of the stock market crashing, specifically the NYSE, has a very high probability (25%). There has never been a market crash that did not occur without these indicators present. The rationale behind the indicator is that, under normal conditions, either a substantial number of stocks establish new annual highs or a large number set new lows - but not both. However, this indicator mainly tracks new lows and downside risk (there are several other factors as well). Well all that’s happened on two separate occasions just recently. The Omen predicts that the crash will happen with 180 days.
Now I’m not saying this will happen. I’ve only become aware of the omen just recently through a subscriber, and at first I thought it was just a bunch of bunk. But to hear it on a financial podcast, on the national news and start reading it online and in print, the possibility starts wearing on you.
OK, so enough of that. Let’s get back to more conventional technical analysis. As I was saying before the omen, market internals are pretty bad. Even after the mini rally just before the long Jul 4th weekend, the decliners still outpaced advancers significantly. The NYSE decliners to advancers was 2 to 1, the Naz was 8 to 5. Now even with oversold conditions, where one might expect a bounce, I can’t bring myself to pay that possibility any attention. In fact, this pattern has reared itself several other times during this downtrend, usually preceding big reversals.
The other problem is sentiment. Even though the VIX has been inching up (currently just below 25), and the Put-Call ratio has been spiking a bit, getting as high as 1.5 to 1.6 during the day (21-day average is 1.05), it always seems there’s a reprieve. And we get a break after some really bad down days, pressure is released and things are OK, we can handle that. It’s kind of like the frog in the cooking pot. You put him in the pot with cold water, and slowly crank up the heat until he’s cooked. The frog doesn’t notice the rise in temp, so he’s complacent to sit it out until it’s too late. What we need are several down days to really crank up the fear (getting the 21-day Put-Call ratio to 1.20 and the VIX to 30), to a point of capitulation, and then maybe we’ll see a reversal.
So with Apple releasing the 3G iPhone into the wild this week, what can we expect? I think there are going to be wild swings in the price of AAPL. The hype and anticipation will crank up the price, but the market, unless it does a miraculous reversal is going to be a huge gravitational force, that even AAPL won’t be able to escape. I believe AAPL will revisit the high 160s and perhaps touch the low 180s, but will ultimately settle back to where it currently lies, the mid to low 170s. So, my best advice is more of the same. Play it light if you must play the market, I prefer cash.
I’ll be providing daily guidance and intraday alerts to members of the Wilderness Investors Group. Check it out, it’s FREE! There are great discussions among many talented investors. Even if you aren’t inclined to join the conversation, you can learn a great deal about how professional investors go about their business.
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