Testing Support

The indexes are down just over a percent this morning in reaction to Friday’s jobs numbers.  This drops us down to previous support/resistance levels and slightly above the 50dma.  So far the sell-off has been fairly orderly and the indexes are trading in a tight range.  This is fairly constructive as the sell-off didn’t trigger a snowball of additional sell orders.  Volume is again fairly light, exhibiting a lack of concern by most security holders.

Technical and psychological support at these levels was inevitable.  Over the last 3-months, selling into any weakness has been a mistake and the best money was made from buying these dips.  And that is exactly what it appears people are doing as we find support at these levels and a cascading sell-off has been avoided to this point.

But the lack of fear in the markets and traders resolve to hold their securities and not get shaken out is what makes me cautious.  The best example of this is AAPL.  Again AAPL seems to be the hideout of choice for traders who want to weather the storm as AAPL is up on a big down day in the markets.  AAPL was a safe haven during last summer’s sell-off and it seems to be filling the same role this time around.

But in a lot of ways AAPL is reminding me of gold last year.  Gold bugs were saying  gold is good for inflation, deflation, slow economy, and hot economy.  Gold was the be-all, end-all, cure-all for anything that ailed your portfolio.  And this year, AAPL seems to be that same elixir.  Up-market?  Buy AAPL.  Down-market?  Buy AAPL.  Strong economy?  Buy AAPL.  Weak economy?  Buy AAPL.

Since everyone is so bullish on AAPL, the real question is under what conditions should we sell AAPL?  When no one can answer that question is when you need to get nervous.  Right now the biggest liability I see for AAPL is the relative ease of buying a new iPad since its launch.  Did AAPL ramp up pre-launch production to avoid shortages and back-orders we’ve seen in the past?  Or was the demand for the new iPad less than what we’ve seen in the past and that explains the availability?  (Most likely a combination of those two factors.)

But as with gold last year, it was a great trade as long as you knew when it was time to get off.  No doubt AAPL can and will continue to ride higher, but remember what WON says, “All stocks are bad, unless they go up.”  Don’t fall in love with Apple and remember it is just a trade.  As always keep a lookout for a good time to lock in profits on a winning trade.