Apple: Dead Last In Exploited Horse Race?

By most accounts today’s action was encouraging. After an initial rough start, the markets soared into the close. Most investors were expecting a bounce at some point, it’s a normal occurrence in a Bear market as stocks get oversold and fear peaks. So, how was this Bear rally different from those that came before? The short answer is market internals. Advancers led decliners by a wide margin, with broad-based support across most sectors. This was exactly the opposite of previous failed rallies. But the real confirmation has yet to materialize. In order for this rally to stick, we need at least a few days to the upside.

So we’re off to a good start, but there were snags in this rally, especially if you’re an Apple (AAPL) investor. Apple, considered the de facto leader of the Tech sector, one of four front runners known as the Four Horsemen of Tech, finished the day in the green at +3.17 (1.87%). The other Horsemen include; Google (GOOG), Research in Motion (RIMM), and Baidu (BIDU). But Apple didn’t lead today, in fact it came in dead last. This was extremely troubling when you consider that just this past weekend Apple sold 1 million iPhones in 21 countries, and RIMM was downgraded. Yet RIMM trounced AAPL by finishing the day at +5.15 (4.87%).

The other Horsemen left Apple eating trail dust, with GOOG coming in third at +19.51 (3.78%), and BIDU the winner by a length, ending up at +16.90 (5.99%). Could this relatively poor showing by Apple be due to the bad press associated with weekend activation snafus, a lack of shorts covering with Max Pain very low relative to the other horsemen, or perhaps manipulation by the usual Apple antagonists, talking next week’s earnings report down? I guess it doesn’t matter at this point, what’s done is done.

If you want to be a successful trader, you have to let go of the incidentals that tug on your sensibilities and emotions, and focus on the bigger picture. And that’s the gargantuan move by the S&P to blast through 1240, regaining it as critical support. The next big move would be to backtest 1240 and hold, this would solidify this level and make it very strong support.

So, what caused this rally in the first place? I think it’s generally accepted that the two-day plunge in Oil was the catalyst and principle reason. Oil has been the cause of our runaway inflation and falling dollar. The other catalyst had to be Wells Fargo (WFC) reporting excellent numbers and increasing their dividend, can you believe it? This send the Banking sector soaring, with an amazing bullish hammer!

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The financials are the evil twin of Oil, but if we can solve one then the other can be dealt with. The two other reasons for the rally were the historic oversold conditions and the extreme pessimism and fear in the market place. If we continue this rally, it would appear capitulation day was actually yesterday (Tuesday July 15), when the $VIX (the generally accepted way to measure of fear in the markets) peaked at 30.81.

The thing that leads me to believe this rally will continue is the Bull-Bear spread is still heavily on the side of the Bears by over 21%. On the flip side Oil may still have some upside pressure due to strategic supplies off their 5 year average, despite the surprise increase in yesterday’s report. That’s an incredibly high degree of pessimism, especially in the wake of a strong rally. This bodes well for Bulls from a contrarian point of view. The final indicator, and perhaps the most important are the positive divergences, between the MACD and price, that appear on the weekly charts of all the indices, and a strong bullish hammer on the S&P 500 ($SPX). Positive divergences are the most reliable indicator of bullish reversals.

Disclosure: Long AAPL

Comments

[User 158605]

One month ago, RIMM was at 148; today $111. One month ago, Apple was at $178; today $173.

Apple has remained steady - at least until the 21st at 11 AM.