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Apple. Buy, Sell or Hold

Apple Inc.(NASDAQ:AAPL) gapped up close to $27 at the opening bell on Monday to close +$23.23 (+4.97%) higher for the day.  The jump was due to a better than expected iPhone 5S and iPhone 5C opening weekend sales. Over 9 million units were sold since the September 20th release date and according to numerous reports the demand for the new devices have exceeded initial supply. In comparison, last year Apple was able to sell only 5 million iPhone5 units in the first 3 days on the market.  With the Apple Inc stock up close to 9% in just 5 trading days, does it make it a buy, sell or hold?

gold iphone investwithalex

While the initial sales estimate are impressive to say the least, they must be put in perspective as in comparison to the last years release of iPhone5. For instance, current release was synchronized with foreign markets release. Most importantly, iPhone 5S and iPhone 5C were made available over the weekend in China. In the past Apple Inc has released iPhones in China 2-3 weeks after the initial US release date. Plus, since Apple Inc is not breaking down sales number by phone there is still a lot of confusion if the consumers are gravitating towards the iPhone 5S or the cheaper iPhone 5C version. Understanding this little data point could give an important insight into consumers mindset and predict the near term future of the smart phone market.

Still, either way you look at it, Apple’s initial iPhone sales numbers were incredible. Given the sales surge over the weekend Apple Inc filled an 8-K form with the Securities and Exchange Commission today stating that they expect its next quarter’s sales to come in at the high end of the estimated $34 to $37 Billion made in July. Further, the company estimated that the gross margins will be at the higher end of the previously provided range of 36% to 37%. These record breaking numbers are sure to put an exclamation mark on what has been a record breaking fiscal year for Apple Inc, ending on September 30th, 2013.

While Apple Inc is surging forward, its old rival BlackBerry Ltd (NASDAQ: BBBY) announced that it has received an offer to be acquired by Fairfax Financial Holdings Ltd at $9.00 a share. Once a smart phone market leader BlackBerry is now a shell of its former glory days. The company has failed miserably to maintain its innovation lead against both Apple and Samsung (OTCMRKTS: SSNLF) since the first iPhone introduction back in 2007.

When you think Apple Inc standing couldn’t get any better, it actually does. Since release of its iOS 7, over 200 million users switched to the latest operating system. As part of the upgrade Apple Inc has introduced a new product called iTunes Radio, which now has over 11Million users.  That spelled disaster for the stock price of Pandora Media Inc (NYSE: P) whose stock declined by more than 10% since Apple’s iTunes Radio introduction.

Will Apple Inc eat Pandora’s lunch as well? It certainly looks like that. With over 11 Million listeners in just a few days, direct to consumer infrastructure (iPhone/iPad/iPod and iTunes) and top of the line brand name, I believe Apple’s entrance spells serious trouble for Pandora Media’s future.

Given this overwhelmingly positive fundamental picture Apple’s stock still trades well below its all time high of around $700 set exactly a year ago. What does this all mean? Fundamentally speaking and given its growth rate Apple Inc stock is not that expensive. At the same time investors might be a little bit confused in regards to just how much longer Apple Inc can maintain its growth rates and leadership position.

Technical picture represents a much more exciting opportunity. Apple Inc stock has been stuck in what can be described as a trading range between $390-550 for close to 9 months. Now there are signs that the stock has bottomed and is ready to go up again. We are approaching an important point here. If the stock breaks above $500 over the next few weeks, it might be a good idea to start building a long position. Should the stock break above $550, it would be a technical confirmation that the bull market in Apple Inc stock has resumed.

At the same time, Monday’s gap from $470 up to $490 must be closed before any full on bull move can resume. As such and given overwhelming positive news for the Apple Inc I would anticipate a short term pullback before resumption of the possible bull move.

Recommendation:  Hold If Own. If not, wait for either Bullish or Bearish confirmation. 

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Federal Reserve Pledges More Stupidity

The Washington Post Writes: Federal Reserve considers explicit pledge: Low rates if inflation stays down

bernanke meme

The Federal Reserve is leaning toward an explicit commitment to keep interest rates at rock-bottom levels, as long as inflation remains low.

The pledge would be an attempt to strengthen assurance that the central bank will not tap the brakes on the recovery until it is certain that the momentum can be sustained. The Fed already has vowed not to raise rates — a move that would slow economic growth — at least until the unemployment rate falls to 6.5 percent or inflation rises above 2.5 percent.

Read The Rest Of The Article Here

There are a couple of things in this article that drive me up the wall.

  • We are not in an inflationary environment,  we are in a deflationary environment. The only reason you we are seeing inflation in certain parts of the economy is due to the FED printing a massive amounts of money ($85 Billion/monthly) and dumping it into the financial system by keeping interest rates artificially low. If that wasn’t happening we would already see clear signs of deflation.
  • The FED is punishing savers and true economic growth by keeping interest rates too low for far too long. All while developing significant economic imbalances that will have to be deflated at a later date.  The situation is made worse by creating an environment where only people with access to cheap financing benefit. At the same time the US poverty rate is at all time high or close to 50 Million people. 
  • The article assumes that the FED is in complete control of interest rates. At least for now everyone believes that. Yet, nothing could be further from the truth. While the FED can influence the rates, it cannot control it. The market controls the rates. 

This in return presents a trading opportunity for those who think otherwise. Eventually the interest rates will move independent of the FED and destroy the whole scheme in the process.

When will it happen?

Actually, it might be already happening as interest rates already up 100% over the last 12 months. Is the FED finally losing control? I hope so. In the long run it would be great for the US Economy. 

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Buffett Can’t Find Any Stocks

Reuters Writes: Buffett lauds Bernanke but laments lack of investment bargains

buffett investwithalex

(Reuters) – Warren Buffett said on Thursday he would recommend reappointing Ben Bernanke as Federal Reserve chairman, while adding that low interest rates have inflated asset values and complicated his hunt for investments at his company Berkshire Hathaway Inc.

The billionaire investor spoke one day after the central bank surprised investors by postponing its expected wind-down of monetary stimulus, which has in five years more than tripled the Fed’s balance sheet to above $3.6 trillion.

“Since the panic of five years ago, he’s done a terrific job,” Buffett said on CNBC television in a joint interview with Brian Moynihan, chief executive of Bank of America Corp.

Asked if he would reappoint Bernanke when his term expires, Buffett said: “That’s what I would do.”

Nevertheless, at an event later Thursday afternoon at Georgetown University, Buffett said that the Fed’s eventual exit from its monthly bond-buying program will carry unforeseen risks.

“We are in an experiment which hasn’t really been tried before,” he said, adding that “buying securities is usually easier than selling securities.”

Read The Rest Of The Article Here

As the article indicates Mr. Buffett  claims not to be able to find any bargains or value stocks. I second that sentiment.   As of right now I am unable to find any worthwhile value stocks at all. There are some special situations here and there, but overall everything is either fairly priced or overpriced.

That in itself is not necessary a problem.  It is the nature of the stock market to cycle up and down to provide trading opportunities. However, when you combine the current macro economic backdrop with the fact that most stocks are too expensive, the situation is not pretty.

Can they get even more expensive? Of course they can, but as my stock market timing work indicates that shouldn’t last for long. The stock market is in the topping process and when complete we should receive a number of confirmations that the bear market is back. Once again, I don’t believe we have to wait too much longer now.  

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Stock Market Update, Sept 19th, 2013

Sept 19 2013 chart

 

I continue to advice to maintain a long position for the time being, but be ready to switch direction at a moments notice.  

Even though I am “Bear” anticipating the market to decline significantly over the next few years, I do have to admit the chart and other technical indicators look strong here. This is a very interesting time. Will the market go on to set a new high or will it be unable to push much higher from here? Will it pause or reverse here? 

All we can do for now is maintain our long position and wait for a confirmation that the bear market is here. Are we there yet or will March of 2014 (as I have mentioned earlier) be the actual top? The market did open a bunch of gaps at 15,300 that it will have to go down in order to close, but at least for now the short term picture looks fairly good here.  There is no need to fight that. 

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Reality Of Today’s FED Move

Bloomberg Writes: The Fed’s ‘No Taper’ Sparks a Trading Frenzy

 

S&P 500 5-minute

The Federal Reserve surprised nearly everyone today when its Open Market Committee announced at 2 p.m. that it would not taper its $85 billion in monthly bond purchases because it is concerned about weakness in the economy. The announcement led to an across-the-board rally as investors hurried to plow money into stocks and commodities.

The market reaction was instantaneous: According to data off my Bloomberg terminal, between 1:59 p.m. and 2:00 p.m., the Dow Jones Industrial Average jumped 141 points, from 15,485 to 15,626. Over the next two and a half hours, the Dow added another 50 points to close up 147 points on the day.

Read The Rest Of The Article Here 

On a more serious note, while the market and most people celebrate I see it from a different perspective. While most market participants see it as “The Fed will not taper $85 Billion per month stimulus” I see it as “The Fed CANNOT taper $85 Billion per month stimulus”. 

There is a significant difference between these two statements. You see, Ben Bernanke and the Fed understand that if they stop the QE bond purchasing program the following things will happen within a short period of time. 

  • Interest rates will shoot up. 
  • Dollar will strengthen. 
  • Deflation will finally be evident. 
  • Stock market will collapse. 
  • Real estate market and auto sales will collapse. 
  • The US Economy will tank. 

They do not want to allow that to happen for obvious reasons. However, the laws of physics cannot be bypassed. Sooner or later all of the things above will happen irregardless of what the Fed does. 

I do find it troubling that the market only went up 150 points or so. That is a fairly weak performance considering what has happened. In no uncertain terms the FED told everyone that it will keep this credit financed speculation party going for as long as possible. 

The biggest mistake I think everyone is making is the fact that they believe the FED has control of the markets. That is not even close to reality. They do not control anything. Don’t be surprised if the market reverses tomorrow and begins its next let down. 

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More Cocaine For Everyone

It was well past midnight, but everyone was still partying.  Although the booze and drugs were running low, the party was still in full swing.  The entire school was there. Real estate alphas, derivative betas, the car club and who could forget about the speculator zetas.  As sunrise approached everyone was starting to get tired. Some people were even talking about calling it a night and going home.

That was until a good lad Ben Bernanke kicked in the door and yelled  “I got it, let’s party”.  As he opened his duffle bag and emptied the contents on the couch, everyone in the house went wild. There it was. Two kilos of pure Columbian coke. More than enough for everyone.  The party was back on.

As the clock hit 9 am, the house was surprisingly silent.  When the campus police opened the door there were bodies everywhere. Some were laying there motionless and not breathing, some were simply passed out, some were twitching while others sat silently staring at the wall.  As the medical examiner took the bodies out, it was not till much later that the cause of the tragedy was revealed.  For most, there was simply too much coke that night. 

If you are wondering, that is exactly what happened in the stock market today. 

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How The Stock Market Really Works (PART 1)

3d tunnel - invest with alex

 

People have a lot of misconceptions about how the stock market works. The primary two are…

  1. That the stock market is random and
  2. News, events, policy, governments, etc…. drive the stock market.

After in depth study of the market over the last 15 years, nothing could be further from the truth. The market is NOT random and news/events, etc… have no impact on the overall trajectory of the stock market. As a matter of fact, it is the market that drives events and not the other way around.

So, how does the market work? The stock market is a lot more complicated than most people believe. You see, most people view it as a two dimensional (2-D) representation of time moving up and down over time. It is a very simplistic view to take, but that’s what everyone does.  

However, the market is A LOT more complicated than that. Before I tell you what I mean, allow me to bring your attention to something else for a second. I want you to realize that Mother Nature does not produce 2-D systems. Nothing in nature is 2-D while everything in nature is at least 3 Dimensional (3-D). Look around you. Everything in the physical realm, from planets to atoms exists in 3-D.

What does this have to do with the stock market? Everything.

The stock market is NOT a 2-D environment. It exists in at least a 3 Dimensional environment. It is our human mind that cannot comprehend that and as such forces the stock market chart into the 2-D (Time/Price) chart.

Let me give you an example. Take a look at the 3-D tunnel above. Imagine a snake moving away from you by hugging the walls of the tunnel. Well, that is a 3-D movement. However, if you take this same tunnel and turn it so you face it head on, the ONLY movement you will see is UP and DOWN 2-D movements within the tunnel.

That is exactly what we see on the stock market chart. Yet, the market is a lot more complicated. Not only does it have up and down movements, it moves sideways (in volume) as well.  When one understand that, one can take financial/market analysis to the next level and predict the timing of the stock market moves mathematically with great accuracy.

This concludes Part 1 of How The Stock Market Really Works. 

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Stock Market Update (Sept 16th, 2013)

daily chart Sept 15, 2013

 

The stock market is behaving just as anticipated so far.  The Dow is getting into a very exciting territory. As I have mentioned in the past, we are close to the moment of truth. We are either going to get a confirmation that the bear market rally that started in 2009 is now over or go on to set the next top.

My work shows that there is an 80% probability that the bear leg down has started with the top set in August of 2013. However, there is a 20% chance that the top will complete in March of 2014 instead. Without going into too much details in regards to the timing involved, what will happen over the next few weeks is incredibly important.

Even though the futures are up close to 1% due to Summers drop out, I believe the market will give up gains and this week will be somewhat uneventful. The market is moving up to close the gaps in 15500-15400 range as I previously discussed.  Thereafter, it should pause for a little to digest the gains. At that point we should either see divergences indicating the next leg down OR continuation of the run.

Once again, not much to do right now, but wait. Maintain your long position (if you have one) and wait for various confirmations that the bull run is over to kick in. I will keep you posted.  

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GOLD

investwithalex gold

 

People keep asking me about Gold and other precious metals.

Short Answer:  I have no idea. I am too stupid to understand the metals in order to predict them.

Longer Answer: I have studied Gold for a while now and have heard every bullish and bearing argument for or against it. I understand inflation, deflation, safety and currency issues associated with precious metals. However,  I cannot put a complete analysis together in order to give you a legitimate answer.

Basically, precious metals are too complicated.  Some people see it as money, others as inflation/deflation hedge, then you have fundamental/industrial demands for the metals, then there are national reserves, etc….

All of those points are easy enough individually, but when you put them all together you get a lot of interference and noise without any clear direction. Perhaps it is easier for other people to understand, but it simply does not make sense for me.

I cannot see any fundamental reasons for owning gold.  Is it a hedge against inflation/deflation?  Not really. I would rather hold US Dollars in a deflationary environment and a portfolio of inflation protected stocks in an inflationary environment. Plus, the long term gold chart doesn’t look good from a technical stand point. It is either showing a sideways movement or a breakdown.

investwithalex gold chart

Can Gold and other precious metals appreciate significantly here? Sure, but they can also break down. Once again, I have no idea, nor do I find myself qualified to issue an appropriate opinion. 

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Stock Market Update, Sept 10th 2013

Sept 10 2013 chart

The Dow is recovering nicely here, just as anticipated. As I have mentioned before the market was oversold and due for a bounce. I believe this bounce will take the rest of September to complete. 

What is interesting is that the market left a bunch of open holes (gap downs) on the way down around 15,500-15,400 range. After studying the market for many years, I have noticed something. The market doesn’t like these gaps. One way or another the market comes back to close the gap. Even if it takes years.

Other technical and timing works indicate that the market is likely to get into this 15,500 range by the end of September before reversing and heading down. As of right now I would still be in a waiting pattern, looking for various confirmation. There is no need to rush here. Stay patient. 

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