The Apple (AAPL) death march mirroring the 2009 end of year action continues. All those investors who are loaded up on January out-of-the-money calls in hopes that the Verizon (VZ), China, iPad/iPhone, MacBook Air, Apple TV and earnings catalysts will lift the stock have failed to identify the current market trend and have failed to accurately interpret historical precedent. We are in a very difficult investment environment right now and must invest accordingly. Consider the following market moving news items of the day:
1 - WikiLeaks is set to release Enron-like internal documents from a major U.S. bank sometime early next year. As if the banks didn’t already have enough to worry about because of the foreclosure fiasco, now investors
are going to deal with the uncertainty as to which bank will get hit. The path of least resistance is to the downside for banks.
2 - European contagion fear increased after the Irish bailout. This is adding fuel to the market correction even if its effect is exaggerated by overeager bond traders. It looks like Europe debt contagion will continue to be utilized as a primary driver whenever the market is in need of a technical correction.
3 - The market is no longer certain that U.S. tax cuts are coming in 2011. President Obama is meeting with both sides to discuss the issue and so far we see Democrats taking a hard line stance against the pro-growth policies.
Bad sentiment surrounding banks, Europe and tax policy is not a good thing for the stock market. As we measure the pulse of the market’s new identity in Stage Three of the recovery we are hoping to get a clear picture or its new trading range. During Stage Two the Dow liked to dip into the 9,000’s before investors were compelled to buy. I doubt we will go that low in Stage Three. This should be a period of higher lows and higher highs but we will have to wait and see how low this sell-off takes us.
Actually, the 2009 Apple comparison could be setting up quite nicely: During that death march the only productive time to own Apple was from the Dec. 7 low of $188 until it reached $209 on Dec. 24. If we can get an entry below $300 during the first 10 days of December we will be compelled to buy.
During a death march it is important to remember that events and dates do not serve as catalysts. The only meaningful catalyst is price action. Take a little cash to buy dips and sell rips. We remain very happy to have 59% of the portfolio in cash with the majority of our Apple exposure in 2012 and 2013 LEAPS. Exposure to other stocks and the market in general is non-existent for a reason. The investment climate post QE2/elections remains highly uncertain.
Disclosure: Long AAPL.