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Zach Bass (a.k.a Ernie Varitimos) is Chief Bloviator of Investor in the Wilderness. He has 30 years experience as a Tech Maven, Investor and Consultant. Zach has been using Macs since their introduction in 1984, and investing in the markets just as long. His mission is to help guide all level of investors through the Apple Ecosphere and make sense of the markets. Zach's take on Apple, the markets, and life pursuits, will keep your mind tuned.

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OMG Apple Investors! Now What?

September 15th, 2008 • Related • Filed Under
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My last 4 blog posts have been dedicated to warning you all of this event. I hope you all listened and took action. So now, the big question is, where do we go next. What should we expect?

Let me start by commenting on how interesting it is that the Fed decided to not interfere. If this is their policy going forward, the market is not going to like it, because it is fraught with uncertainty. The market hates uncertainty.

But don’t think for a moment that they’re not trying to figure out how to put the brakes on what’s coming next. And just what is that, you may ask? A complete market breakdown, spurred by the fall of AIG. S&P/ Moody’s downgraded them this evening. AIG needs to cough up $100 billion to stay solvent. In my opinion, this carries far more risk than Lehman, as AIG dwarfs Lehman and Merrill combined in market influence.

So, what is the Fed going to do about it? That’s assuming that they can do anything about it. Well, don’t be surprised if they come out with a huge rate cut. My guess is 100 basis points. And will that save our collective asses? It might. But it will have to be followed up with assurances that all the other financials that are on death’s door step, won’t meet the same fate as Lehman.

In the mean time, as investors and traders, we need to know what ammunition we have at our disposal. That is, what kinds of market action can we expect and what are the levels of support that might provide some cover for our positions? Well here they are:

First of all, let’s be clear. We lost all our major support levels in the indices that matter to us. The Dow lost 11,200, the S&P lost 1200, and the Naz lost 2200. What will likely happen next is a backtest of these levels. Investors are going to see if these former levels of support are now levels of resistance. If the markets fail the test and fall back, then we need to concern ourselves with the support we have underneath. Well, the Dow has weak support at 10,800 and then much stronger support just under 10,000. The S&P has major support at 1150, and the Naz has weak support at 2000. Let me tell you folks, I would bet the bank on those support levels. They are mediocre at best in this nasty market we’re in.

So, what about our favorite stock, AAPL? We lost that critical 146 level with ease. Now the next level of support is big, and that’s just below today’s closing price at 140. This is the to of the gap down from our monumental January plunge. If we lose 140, then we have some support at 135, then 130. But it’s all academic at that point. If the indices lose there majors, then AAPL is going down, and the bottom is not clear. Our only hope is to backtest successfully, then hold those levels.

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More on this topic (What's this?)
AIG Asks the Fed for Help (naked capitalism, 9/14/08)
Fed Considering Lending to AIG (Update: Or Treasury Conservatorship) (naked capitalism, 9/16/08)
What’s going on at Apple? (Part I) (The Curious Investor, 12/17/08)
The End of Steve Jobs ™ (The Curious Investor, 12/18/08)
Read more on Apple, American International Group, Lehman Brothers at Wikinvest

Viewing 3 Comments

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    From the look on Ken Lewis's face, there is a rate cut brewing. He would not have swallowed this big bitter pill without some kind of assurance from Benny B.

    Ben also needs Goldmine and PJMorgan to belly up to the bar, and they are not going to ingest big losses without a little cocaine line of a rate cut, I would guess.
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    To all you people who think Zach is reversing his views to get his readers to go the other way, you have got to be high. For one thing, he has no idea what options you are buying, or if you can buy 5 shares of stock or 5000.

    Right now, hedgers are throwing tidal waves both ways in a matter of ticks. Your buys are of no consequence. Please, get a clue.

    Also, there is the often overlooked issue of personal integrity, and since most good traders have to be able to interpret data, they should be able to sleuth from his attempts to help make this site a good source of info that he is not pulling some convoluted scam. Btu believe what you will and invest your 20k however you need to. :P
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    Thanks for the insights Zach. They are sharp as ever and a guide for the perplexed me included!

    Some further observations whilst Apple sp has corrected over 30% since its highs the Dow has corrected 23% and S&P 24%. To me that suggestes there is further to go as here in the UK the ftse has corrected 24% while our financials are down 83% to 60% and commodities 27% to 50%!
    Crash helmet firmly on Vigilant and loose (in all respects!)
 

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