Jobs report gives, AAPL takes away

By Jani Ziedins | Intraday Analysis

Oct 05

S&P500 daily at end of day

MARKET BEHAVIOR

Markets popped at the open on the monthly employment report.  It’s not worth debating the nuances of the report, the market liked it and that’s what matters.  The S&P500 rose to 1470, but faded into the close.  The culprit was a stumbling AAPL.  The NASDAQ fared even worse since AAPL represents a supersized position in that index.  Live by AAPL, die by AAPL.

It is unusual for a single, volatile stock makes up such a large portion the indexes and because of that, we can’t overlook the price action of AAPL when talking about the market.  AAPL closed under the 50dma on large volume, a clear sign of distribution.  If AAPL continues breaking down, it will take the S&P500 and NASDAQ with it.

On the flip side, the S&P500 is still within 1% of a 52-week high.  Market makers make money from trading activity and no doubt they’ll do their best to push us to new highs to trigger a short squeeze and bring in all the breakout buyers.  The bigger question remains if a new high will be part of a double top, or a continuation pattern.  The market covered a lot of ground in the last 6 weeks and it wouldn’t be unusual to see it pullback and form a handle before pushing through 1475.  I’d say a new high is a done deal except the weakness we’re seeing AAPL makes things a lot cloudier.

MARKET SENTIMENT

There are still a lot of cynics who are increasingly frustrated with the market’s strength in spite of all the reason it should go down.  But I sense they are transitioning from arrogance to dejection.  Self-doubt is creeping into their psyche after getting beat-up time and time again by the market.  This is part of the slow grind turning bears into bulls.  Reluctant investors wading deeper into the market and bears buying back shorts are the new buyers pushing this market higher.  The market is ruled by supply and demand, not fundamentals and technicals.  Investors buy and sell based on their perception of fundamental and technical analysis, but it is the actual buying and selling that moves market prices, not the fundamentals and technicals.  This is a critical distinction most traders overlook and often turns into an expensive omission for many.  We are not trading stocks, we are trading other traders.

TRADING OPPORTUNITIES

The market still wants to go higher but each gain becomes harder than the one before.  We are further along into this and getting close to the end of the run before the market needs to rest and consolidate.  Keep an eye out of an opportunity to lock profits in and get ready for the next high probability trade.  We should be looking at getting out, not in at these levels.  Resist the temptation to chase.

AAPL daily at end of day

INDIVIDUAL STOCKS

Can’t ignore the negative price action in AAPL today.  Reports of a supplier strike affecting iPhone 5 production is making headlines.   IPhone buyers are a loyal group and I doubt after waited this long for their phone, a few more weeks will make them jump into Samsung’s arms.

The bigger issue facing Apple is iPhone fatigue.  From my casual observations, the iPhone is no longer the cool phone with young people and they are excited about the Samsung Galaxy S III.  Steve Jobs revolutionized the smart phone market, but the competition is catching up, and in many ways exceeding them.  Phones are becoming an extension of a person and many don’t want the same phone everyone else has (or worse their parents have!).  But this is a first world story, AAPL still has huge growth opportunities throughout the world that will easily make up for the declining market share in the developed world.  The question is if that will be enough to keep up the huge growth rates we’ve seen to this point.

Stay safe

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.