Apple Selling Climax -- Trader's Buy?

George Brooks |

The bull market that began in early March 2009 has yet to enter a speculation phase and yet to attract the individual investor, so more upside can be expected.

That does not preclude a sharp correction, or sideways consolidation before this bull stops snorting.

That could be happening now if the U.S. House hadn’t postponed a fight yesterday over raising the debt ceiling until May 19, contingent on Congress passing a budget resolution by April 15 for the next fiscal year. If either House or Senate fails to pass a budget by then, pay for that chamber would be withheld in an escrow account until one is passed. Not sure that is legal.

Congress must now deal with the automatic spending cuts scheduled for March 1, as well as the expiration of the continuing resolution appropriations measure to keep the government operating in March. If anyone can find wiggle room, it is a politician, so these deadlines have some flexibility.

CONCLUSION: Uncertainties loom in Washington over who gets hurt most by spending cuts and whether there will be any brinkmanship accompanying the debt ceiling debate in May.

Meanwhile, the economy keeps gaining traction and money managers simply have nowhere else to invest clients’ funds but in stocks. The pool of buying power cannot be reduced as long as there isn’t an attractive alternative to stocks, since for every buyer there is a seller, who must then put those funds to work!

Near-term support moves up to DJIA 13, 712 (S&P 500: 1,484) Apple will adversely impact the S&P 500 and Nasdaq today. Breaking that, look for support at DJIA: 13,625 (S&P 500: 1,478).

The tech stocks will get hit today, so the DJIA will advance while the S&P 500 and Nasdaq will be down.
DJIA: 13,779
S&P 500: 1,494.81
Nasdaq Comp.: 3,153.67
Russell 2000: 896.70

BIG WEEK EARNINGS:
Q4 reports for the S&P 500 are now expected to come in on average at plus 3.8%, up from recent projections for a gain of 2.5%. Of the 84 S&P 500 companies reporting so far, 75% have “beat” Street estimates, but realistically, I suspect a lot of those were low-balled in the first place.

BOND MARKET:
I was premature in my earlier forecast that the long-term bond bubble would burst, but now feel it has already begun with a top traced out between July and December. U.S. Governments were in demand as a refuge from international chaos. As the tensions from European sovereign debt woes abate, money will flow out of safe havens and into stocks where a better return is hoped for. The short-term bonds are obviously not the problem, but long-term bonds are vulnerable.

APPLE (AAPL): $514.00 Selling climax opportunity?

The persistent selling since September suggests someone knew AAPL’s business was sliding. Yet, prior to its earnings report, there were a good number of positive projections, and that would account for the buyers all the way down from $705.

The big question here is, how much of AAPL’s Q4 earnings shocker was discounted by its four-month, 27% slide before the report came out?

Last Wednesday, I described the behavior of a popular stock that has been hammered by persistent selling. As fear mounts, the stock goes into one final high-volume plunge that “flushes out all sellers, big and small, and that marks the bottom. My best guess then was a selling climax would take AAPL down to $438, followed by a rebound to $475, or so.

I still see that. One gigantic flush would clear the air. The alternative would be a series of “chops’ down (plunge – technical bounce – plunge – bounce – plunge, etc.) until it finds a comfort level. We have seen sellers who expected the worst, but we must now deal with new sellers, those who got blindsided by the Q4 report. At this point, I think AAPL will have to break $450 before it has discounted foreseeable negatives.

Gutsy traders may want to stick a wild bid in before the open a bit below its projected open in hopes of catching it prior to a technical bounce triggered by short covering and bargain hunters. Today’s action comprises a huge “gap” between the open and yesterday’s close. Fundamentally, it is getting very cheap.

I do not own, nor am I short Apple’s stock.

FACEBOOK (FB - $30.82): Bulls in control again, but a seller appeared in the last hour of trading to rain on its parade creating resistance close to yesterday’s high of $31.50. Support is now $31.55.. A break above $30.90 counts to $33 - $33. FB was hit recently by an announcement that it had lost 1.4 million active users and by news of its introduction of Graph Search, which facilitates users’ search through connections for various items of interest.

FB has some 167 million users in the U.S., and 1 billion worldwide.

I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because on May 21. I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. I warned of a drop to $24-26, which it did shortly thereafter. Following a rally back into the 30s, FB dropped into the low 20s where on August 2, I forecast a low of $16.88. On September 4, it hit $17.55, its low since its IPO at $38. I’ll continue technical coverage for a while to accommodate readers.

As for Apple, well it is a big-name stock that got shellacked in a short period of time, I wanted to help out targeting a bottom as with FB.

ECONOMY:
Note: The Fed’s Beige Book, a business summary from all Federal Reserve district banks, sees modest or moderate growth in all 12 districts. I am going to list the economic reports below but will not include the numbers from the last report, since those numbers are often revised significantly and therefore potentially misleading.

I suggest you access the website: www.mam.econoday for details reports on this week’s calendar and an excellent recap (plus graphs) of last week’s reports.

THURSDAY:
Jobless Claims (8:30)
PMI Mfg. Ix.(8:58)
Leading Indicsators (10:00)
Kansas City Fed Mfg. Ix.(11:00)

FRIDAY:
New Home Sales(10:00)
Consumer Sentiment (9:55)

George Brooks
“Investor’s first read – an edge before the open”
sensiblesleuth@gmail.com

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The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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