Archives for December 2012

Apple Turning Around

This morning, you likely received an email with Apple in the subject line and no content. I apologize for that! I was in a Philadelphia hotel room on the way out and I thought I hit “paste” and send. Obviously, my fat little fingers missed a step. When I received it on my phone, my first reaction was, NO! It reminded me of those unscrupulous Dotcom bubble stock touts who would send emails with either the company’s name or stock symbol and little else in the email. These were typically pink sheet or micro-cap stocks that could be easily manipulated. Traders and investors would speculate and buy the stock, forcing its share price higher only to allow the tout to sell into the rise. Some folks call this “pump and dump” and it’s been around forever in the markets. And it is illegal. Anyway, I certainly did not intend to just send the word “Apple” and I would never “pump and dump”! So I am sorry again.

When I got home earlier this evening, I wrote the article about Apple once again. This time as I hit send, the website froze and I lost all of work for the second time today. So I am wondering; is someone upstairs trying to tell me something?!?!

Without further ado, here we go on Apple…

For a long while, as you know, I have been fairly negative on Apple the stock, forecasting a possible 50% to 70% decline by the time the next bear market in stocks ends. It’s not about their products or management, although losing Steve Jobs is definitely a major negative, or any accounting irregularities. As my kids tell me, Apple’s products are incredible. Rather, this is purely sentiment call.

Apple has become a cult stock ingrained into our investing fiber. From a crisis low of roughly $78 to 2012 high around $700, this stock soared into rarified air in fairly short order. It’s the stock everyone is supposed to own according to the masses. Over the past year, whenever I offer a contrarian forecast, people scoff at the notion that their beloved Apple could decline for more than a few days or week. After media appearances where I forecast massive losses ahead, people post nasty comments about me online.

Apple has become the classic story stock of which there is at least one in every single bull market over the past 100 years. Google, AOL, Yahoo, IBM, GE, Exxon, Chevron, RCA, Xerox, GM, Avon, Navistar and on and on.

Can you guess the ONE thing they all have in common?

Ensuing bear markets decimated them 30%, 40%, 50%, 60%, 70% and even 80%! Now, some of those story stocks did recover, like Google, but not to the degree of the previous bull market. In most cases, the companies matured and their best rates of ascent were long gone.

I have heard all the nonsense about Apple’s price to earnings ratio being modestly at 12 and it’s actually severely undervalued. You know what I say? So what! Go look at the P/Es of the banks and homebuilders in 2006 as they hummed along. They were mostly SINGLE DIGITS! How did that work out for them?

Before you stop reading and think this is all just another hatchet job on Apple, stay with me please. While my forecast remains for a massive decline in Apple before the next bear market ends, Apple just hit my initial downside target of $500 yesterday. Why does that matter?

For the first time since June, Apple looks like it is in a position to rally smartly from its $519 close yesterday. At its worst, we saw a 28% decline from $700 to $500. Recouping half that would not be out of the question if the overall stock market remains stable. On the flip side, Apple is not “supposed” to close below $500. If it does, the short-term bullish scenario is out the window and selling will likely accelerate to the downside. That does offer a favorable risk/reward ratio though.

 

Some of you continue to ask why I focus so much energy on Apple. Simply put, it has such outsized weightings in the major indices like the S&P 500 and NASDAQ 100. As we saw over the summer, it can literally carry the market on its back.

For full disclosure and transparency, I do not directly own any shares of Apple. My exposure both personally and professionally is in positions we currently hold in the major indices like the S&P 500 and NASDAQ 100.

As always, I look forward to your comments and questions!

Paul

P.S. PHEW! I finished the article and got it posted without losing it for a third time!

Will the Country Even Function on January 1?

The latest Street$marts has been posted!

http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20121221.pdf

 

Santa Claus Rally

If Santa Claus should fail to call, bears may come to Broad and Wall.

That’s an old stock market adage indicating that if we do not see the traditional Santa Claus rally over the final five trading days of the year, the potential for a bear market or major decline increases in the New Year. The final five days clocks at the close on the 21st, coinciding with the end of the world according to the Mayans.

There is also a trend that shows a very seasonally strong period for semiconductors from now through year-end. This group is one my canaries in the coal mine and absolutely vital for the long-term success of any bull market.

Besides the most overhyped event since Y2K, the “dreaded” Fiscal Cliff, news flow should really taper off until January 2 or 3, which is one of the reasons why this is typically a seasonally positive time of year.

It’s also getting close to when I release my Fearless Forecast 2013 as well as my Shockers 2013 lists. If only I knew what the heck I was going to write about!

Hopefully, I will send a Street$marts shortly, but in case I don’t, I wish you and your family a very happy, healthy and safe holiday week!

Paul

The Single Most Overhyped Event Since Y2K

Here is the latest Street$marts that talks about Black Friday, Facebook, Apple, the “dreaded” Fiscal Cliff, how the bull market ends and some evidence of a weakening economy.

http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20121211.pdf

More Fed Stimulus Lifts Gold But Hits Dollar

Posted December 13, 2012

http://news.investors.com/investing-etfs/121212-636857-stock-market-gold-silver-bonds-federal-reserve.htm

By Trang Ho, Investor’s Business Daily

 Posted 12/12/2012 06:41 PM ET

 Stocks, gold and silver jumped while U.S. Treasuries and the dollar sold off Wednesday after the Federal Reserve said it’s expanding its economic stimulus program, known as QE3.

The Fed will buy $45 billion a month in long-term Treasuries, to offset the expiration of “Operation Twist.” The Fed will also continue buying $45 billion a month in mortgage-backed securities.

The Fed said its stimulus programs would remain in effect until the unemployment rate stays below 6.5% and one- and two-year inflation forecasts stay below 2.5%.

 

“These ridiculous guarantees at best make the investing public think its central bank has any real control from here,” Jonathan Citrin, CEO of CitrinGroup in Birmingham, Mich., with $60 million in assets, wrote in an email. “There are far too many circumstances that may occur along the path to lower unemployment to make such firm and definite statements.”

SPDR S&P 500 (SPY), up as much as 0.4% intraday, ended nearly flat after Fed chief Ben Bernanke said the fiscal cliff already appears to be affecting the economy. SPY is trading above both its 50- and 200-day moving averages, reflecting a strong uptrend.

Homebuilder and basic material ETFs, tracking some of the most economically sensitive sectors, led. If “QE Unlimited” works, these groups would benefit most from the stimulus as Bernanke has long blamed the housing slump as the single biggest drag on the economy, said Paul Schatz, president of Heritage Capital in Woodbridge, Conn.

PowerShares DB U.S. Dollar Index Bullish (UUP), measuring the greenback against a basket of major foreign currencies, sank 0.2% to 21.84. More QE weakens the currency because it involves printing more of it.

Gold Miners Jump

The dollar’s weakness lifted precious metals prices. SPDR Gold Shares (GLD) rose 0.1% to 165.78. It’s consolidating below its 50-day moving average but above its 200-day line, indicating a weak uptrend.

Market Vectors Gold Miners (GDX) and other precious metals miner ETFs were among the day’s leaders. GDX surged 3% to 47.61. It’s forming a large cup-with-handle base with a potential buy point at 55.35.

IShares Silver Trust (SLV) rose 1% to 32.35 in heavy volume. It jumped above its 50-day line, which means it’s in a strong uptrend. Its chart appears to be forming a bullish, cup-with-handle pattern with a 33.41 buy point.

Global X Silver Miners ETF (SIL) popped 2% to 23.51. It’s forming a large cup-with-handle base with a 25.88 buy point.

Precious metals reflect the dollar’s weakness more so than growth in value, Mark Thomas, founder of SilverPriceAdvisor.com, wrote in a client note. They will rise as long as governments and central banks print money, keep interest rates low and spend with record deficits.

IShares Barclays 20+ Year Treasury Bond (TLT), the most widely traded ETF of its kind, dropped 1% to 122.59, a one-month low. It sliced below its 50-day line but found support at its 200-day line.

TLT’s been heading south since late July as interest rates gradually strengthened.

The Fed’s $45 billion a month in bond purchases was the least the market had expected, so Wednesday’s announcement wasn’t enough to change investor sentiment, said Schatz.