June 2012

In yesterday’s commentary, we cited the punk performance of Apple shares in recent weeks as evidence that the stock market as a whole may have entered a bear market.  “Apple as a barometer? That’s a big stretch,” wrote a regular contributor to the Rick’s Picks forum. We disagree.  After all, Apple is the most valuable publicly traded company in the world – bigger, even, than Exxon Mobil. Given the extraordinarily high expectations that investors (and consumers) have for the company, even a small disappointment – a downtick in sales, perhaps -- could hold serious implications for Apple shares. That in turn could precipitate a major trauma on Wall Street, since so many portfolio managers owe their bonuses in recent years more to Apple’s steep rise than to any other factor. Investor sentiment aside, Apple’s continued success as a retailer is crucial to a segment of the economy that has been devastated by competition from the Internet. As brick-and-mortar stores have fallen one-by-one, Apple’s showrooms have thrived, with lines out the door whenever new products are released. Under the circumstances, the much-awaited iPhone5 had better be stellar in every way, since Samsung will be breathing down Apple’s neck with strong new products of its own. Nor are consumers likely to be impressed by merely incremental improvements. It takes a lot of Wow! factor to get them to pay up for Apple’s relatively pricey hardware.  They are going to be even more demanding as new pricing schemes being rolled out by the phone companies effectively reduce or eliminate the subsidy that has made many smart phones a giveaway item when tied to service contracts. Bear Still ‘Speculative’ From a technical standpoint, the presumption of a bear market in Apple shares is still speculative. Rallies have lacked their characteristic oomph in recent weeks,

Evidence continues to accumulate that the Mother of All Bear Rallies begun in March of 2009 may have breathed its last. Yesterday, for instance, the all-news-is-good-news shtick so beloved on Wall Street laid an egg when markets around the world shrugged following Greek voters’ decision to stick with the euro. Ordinarily, Asian and European markets wouldn’t even have waited to breathe a sigh of relief before putting a death-lock on the cahones of traders reckless enough to have gone home short over the weekend. What we got instead of the obligatory short-squeeze was feeble rallies around the world, culminating with a reversal on the NYSE Monday that left the Dow Industrials 25 points lower.  Worse yet, the news media quickly buried the story from Greece on the inside pages, focusing instead on how Spain’s borrowing costs have shot into the red zone above 7% once again. To put this in perspective, most hedge funds aren’t returning anything close to 7% these days. Imagine having to pay lenders that much just to cover fixed expenses. Another sign that stocks have returned to Kansas after more than three years in Oz is that bellwether Apple’s shares have looked punk ever since the stock hit an all-time high at $644 in mid-April. Minor rally cycles are failing to generate the kind of robust “impulse legs” on the intraday charts that we had become accustomed to. And the shares of another key bellwether, IBM, look just as heavy. Even If We Are Wrong... Are we perhaps premature in our bearishness? There’s always that possibility. We never claimed to have a crystal ball. But even if we’re wrong, Rick’s Picks will be looking to get short every chance we get, buying index put options at the targets of minor rallies, shorting the E-Mini futures outright

No change. Silver doesn’t look quite as punk as Gold at the moment, but neither does it look capable of the burst it will take to vault the 29.260 midpoint resistance shown.  Once that Hidden Pivot is breached to the upside on a closing basis, its 30.605 sibling will become no worse than an even-odds bet.  Alternatively, a bearish target at 27.530 will remain in play (60m, A=29.675 on 6/7), predicated on a close beneath its p sibling at 28.310.

Bulls haven't made much headway since Gold bottomed in mid-May.  However,  with the futures trading near the top of their recent range, it would take only a $20 thrust for them to seize the advantage. Specifically, the August contract would take on new life with a pop today that exceeds the  1649.30 'external' peak shown.  Camouflageurs can try getting long if there's a shallow b-c pullback from just above it, but I'd suggest using a 'timed buy-stop,' since the move may be perceived as a breakout by our competition. If so, the 'x' trigger would likely come up quickly, requiring a nimble response. Click here to learn more about the Hidden Pivot Method and “camouflage” trading.

Index futures were scuddling sideways Monday night, somewhat above the middle of the day's range. A 1378 target for the E-Mini S&Ps is still my minimum upside target for the near term, implying the Dow Industrials are about to push above 13000 for the fourth time this year.

Adding to the evidence that Apple is in a bear market is its inability to create robust impulse legs with each new thrust. This is compounded by the dueling, bearish legs that are following each half-hearted rally. We can try to short the stock at some point, perhaps by legging into a way-out-of-the-money calendar spread when the stock is pushing up against a Hidden Pivot rally target. For now, though, we'll take a step back, since bulls could reinvigorate the larger intraday charts with the relatively short leap needed to surpass the two external peaks shown.

A 1378.25 rally target is an old friend by now -- my minimum upside projection for perhaps the next 3-5 days. The move has already exceeded the 1337.75 midpoint by a mile (i.e., 10 points), so any pullback to that number is implicitly a "buy" via camouflage.  More immediately, night owls could try bottom-fishing at the p midpoint of the still-developing pattern shown in brown. However, because there are three conceivable 'A' highs, a camouflage entry is a must.

It’s still speculative at this point, but evidence is growing that U.S. stocks may have entered a bear market. If so, it will have begun with the powerful impulse leg from early May’s highs. This occurred not only in the broad averages, but in such key bellwethers as Apple and IBM. As the bear develops, our trading strategy will need to evolve to exploit the violent rallies and unexpected dives that lie ahead. In this lesson, we consider some specific strategies that are applicable now, as well as others that will likely come into play over time.

This past Friday, Rick appeared on The Korelin Economic Report. Rick and Al took a break from financial topics this time and instead discussed the November elections. (Rick's segment is #6). Here is a transcript of that interview: Al Korelin: Okay. I’m back with Rick Ackerman. I’m going to do a little bit of a political discussion here, because politics, in my opinion, does relate directly to investing. Okay? Rick, I got a question for you. This deals with the current, with the Obama administration right now.You look at the numbers that are coming out right now. I want to start off with consumer sentiment. Consumer sentiment dropped 5.2 points down to 74.1, according to the Reuters/University of Michigan Sentiment Index that was announced on Friday. It went from 79.3 down to 74.1, okay? That is very, very negative. I think that is a major, major indication of obviously what’s going on in terms of people’s minds. You look at the gold indexes, because I think gold is a very, very accurate sentiment of consumer confidence, as is the first number we brought out. Gold continues to stay above $1600 an ounce level, okay? In spite of the fact that people are calling for gold to drop because things are starting to look so damn good, which I don’t think they are. Now in spite of this, the Dow Jones Industrial Average is not doing too bad. Now, given that scenario, how can the Obama administration possibly think that they can get re-elected? You look at the unemployment numbers that came out yesterday, they were worse, okay? 386,000, if I’m not mistaken, or something like that. Rick Ackerman: Well, I think Al that they can’t. You’ve got a trend that’s global right now, that simply wants to turn the incumbents