Disclosure: All Cash

Friday was an important and telling day. All hopes by retail investors were pinned on the Bailout passing Congress. We were told that without the Bailout we were doomed. Well, the market rose initially in anticipation of the bill being passed, and then when word can down that it was passed, the market summarily sold that news and sold it hard.

The fact is, our politicians sold us feel-good legislation. It won’t solve the problems this economy is facing, it won’t even come close. If you consider that AIG alone needed $85 billion to become solvent, and that’s just one company. How is $700 billion going to solve the credit crunch of the entire banking system? Well. it’s obvious that the market recognizes that the Bailout was a temporary diversion, because now investors are focused on the economy. The ISM Mfg numbers were a very telling indicator as to what is to come, and the decline in Jobs was the exclamation point. We can expect unemployment numbers to start to accelerate from here.

Now, to the uninitiated ending up 30 points down on the day for the Nasdaq, and a measly 3 points with AAPL, may not seem like such a big deal. But when you consider that the Naz has dropped nearly 11 percent this past week, and AAPL has dropped almost 25 percent, you’ve got to recognize this is scary stuff. Well put on your crash helmut and buckle up because that’s not the worse of it!

The Naz lost an important level on Friday, and did it in such a way as to confirm the gravitas of that event. The 2000 level represented a potential triple bottom reversal, meaning that one would expect that when challenging a bottom for the third time, as the Naz did over the past four years, that we would reverse off that bottom. But we didn’t. In fact, we plunged through it on big volume and ended up a full 1% below that mark. That my friends is a classic breakdown, one that will be very difficult to reverse anytime soon. What we can expect are much lower prices from here.

So, what is an AAPL Investor/Trader to do? I have been recommending a cash position. Preserve that capital, it’s going to come in handy when we finally do come off the bottom. Where ever that may be. And where do I think the bottom is? The only time I feel comfortable calling a bottom is when we have bounced off a level and backtested it at least once, and rallied off of it. But in this Bear market, you can still only assume that it’s a temporary rally. 

Is there any place to hide? What about commodities like Gold? All I can say is forget about it! Commodities are dead. That includes Gold, Oil, Steel, Agi, you name it! I can see some relative safety in consumer staples, such as paper, non-perishable foods like soups and canned veggies, as well as soups, and cereals. These are the things people are going to start to hoard as Jobs are lost and money becomes tight.

Let’s look at a few charts that illustrate the situations. These are all weekly charts of AAPL along with all the major indices. Everyone shows a massive break down through the neckline support of a strong and well defined Head and Shoulders pattern. And then you can see that the next levels of support are quite a ways down. For example, with AAPL the next strong level of support from here is in the low 80s. The Dow has some support in the 10,000 area and then again around 9700, but after that there may be no support until 8500. The Naz has virtually no support under its current price. There is distant support around 1750, but that’s not much consolation.

These charts, along with several other charts are available in the Gallery, where you can view or download them. Check out the Head and Shoulder Parade in the Gallery.