Stock index traders watch Apple for direction

The story of the week is the potential high in Apple Computer. At 161 weeks we got a high on Feb 15 with the chart retesting the breakdown area. There’s a lot riding on this because if we lose Apple we lose the most important leadership stock in the world. On Wednesday prices dropped as did the whole NASDAQ and for the first time bears had their way and broke intraday support levels. But Thursday was a strange rotational day where most stocks recovered, notably the SOX. We have a market continuing to make new highs without its leader.

The BKX banking index recovered to make a new high even as the HGX is now lagging. The BTK is lagging and it looks like that topped. Friday was a distribution day and the news is attributed to a bad headline for GILD which is done. That’s how it goes for biotech but it had a great run and the sector topped as the square root of the high for the BTK hit 37.77. That’s one leadership group lost. If Apple goes tech would start to splinter.

Overall the economy continues to show signs of life in many areas which is attributed to a good stock market overall since October. The stock market is the single best economic indicator. The major problem is Greece which is nothing new and word came on Friday according to Doug Kass that the yield on 1 year Greek paper is now 630% which is the highest in history which means their paper is worthless. Whatever it is the Europeans have done, it didn’t work. I feel really sorry when I think of the good Greek people.

There is a certain amount of euphoria concerning a deal which appears to be keeping markets up and you know that last year I couldn’t get too bearish every time they talked about a Lehman moment. But now that market is at new highs, everyone is happy that a Greek deal is getting done I have to tell you I don’t like this austerity business one bit. At the end of the day, I am a European historian and the history of the continent is not good when it comes to financial austerity. Two World Wars suggests those who don’t learn from history are doomed to repeat it. What I’m reading is that in terms of sentiment the center is getting demolished and people are either looking for answers from the far right or left.

I don’t think there is any imminent danger of a demagogue taking over however according to a CNBC story on Monday French far right wing candidate Marine Le Pen has 20% of the vote according to the latest polls. “Our country is in the process of underdevelopment, of Third Worldization,” she argues and according to CNBC scares the pants off the Sarkozy reelection team. Surveys suggest more than 30% of the French look at her ideas positively. In the bigger picture this is troubling.

In my work, this sentiment is viewed right now as the markets climbing a wall of worry. Overall, with markets close to euphoria it could be the recipe for the elusive correction. If that confuses you, psychology is fairly complex. A year ago right now markets pulled back on the start of the Khadafy war. Markets got spooked and had a serious tumble but did not evaporate the way some bears thought. How can we have worry and euphoria at the same time? All you need to do is look at Europe and Apple side by side. Even with Europe we have worry and euphoria side by side. But a couple of days will take care of that. Once the euphoria of a Greek deal fades and people get back to reality they’ll start thinking about what they’ve done. I think the austerity programs are eventually going to bite hard. It’s not a problem for today’s stock market but more than likely something that markets eventually will have to pay for. When you get euphoria and worry side by side you don’t end up with a long term top but can end up with an intermediate level correction. I’m not looking for any long term top, but that elusive shake out. The higher these markets get the more violent will be the shake out.

We haven’t talked about the election in a while. Word is that Romney might not win Michigan and if he doesn’t there’s a chance the election is over already. Unless the stock market really gets hurt this year Obama may have already won. Obama is not a real popular President; I think most of us can agree on that. But he is now the beneficiary of a good stock market and an improving economy. If Ronald Reagan were running, we’d have a great race. But the Republican frontrunner can’t seem to muster the kind of passionate excitement that starts major political movements. One of these guys will get the nomination. That’s not what is at stake. The bottom line is which one of them (including Obama) gets the Reagan Democrat vote which is the center of the country. He who gets that crowd wins in November.

If the election were today Obama wins in a landslide. It wasn’t like that even 4 weeks ago.
Now let’s talk about this market. We have Apple euphoria but that is just testing the 161 week high. We have the feel good sequence with Europe but with Apple at a questionable point markets are very vulnerable.

Next page: We look at the VIX

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