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Andy Zaky
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Andy Zaky is a Hedge Fund Manager at Bullish Cross Asset Management, and editor of the Bullish Cross financial newsletter. His main area of knowledge is in global macro economics, fundamental analysis and technical analysis. Andy has about 14 years of investment experience, a strong background... More
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  • Equity Market Ready to make a Massive Move
    There are several key technical indicators suggesting that the market is ready to make a massive move one way or the other, and the evidence is pretty compelling on both sides of the tape - though I think the bears have an edge here. Yet, one thing is for sure. Whichever way the market goes, it will be a big move in the coming weeks.  (NYSEARCA:SPY) (QQQQ) (NYSEARCA:DIA)

    We're either going to see a February to April type melt-up or another huge downdraft to at least test the correction lows. I suspect this move will begin within the next few trading sessions. I'm currently positioned on the short side of the trade, however, to take advantage of very overbought conditions as exhibited in the NYMO and cumulative tick.

    The Bear Case
    There are four central technical indicators suggesting that this current rally is on its last legs, and the market is about to see some major selling pressure starting within the next few trading sessions.

    First, the $NYMO is simply way too high. In fact, its sitting at levels not seen since the bear market lows set over a year ago. An 80 on the $NYMO usually indicates that the market is getting a little over extended - it current sits at 97.25 set at yesterday's close. You can see a very thorough analysis on the $NYMO at Cobra's Market View.

    Secondly, the cumulative tick on the NASDAQ has hit levels suggesting that a major sell-off sits on the horizon. The last 11 times we saw such overzealous buying on the NASDAQ a significant sell-off in the markets followed within a few days. See Cobra's Market View or SentimenTrader for more on the cumulative tick indicator.

    Thirdly, the last two trading sessions of the last nine or so months have generally been met with significant weakness. Those who have shorted the broader market at the close of the third to last trading session, and covered that position at the close of the last trading session has been very profitable for nearly every month of the past year. See here.

    Finally, the volume on the market's recent move up through several key technical levels of resistance has been very abysmal. This indicates a serious lack of conviction on the part of market participants taking this market higher. The S&P 500 closed above the 200-day moving average yesterday on very weak volume, and continues to flirt with that level today but without the necessary conviction to bring real buyers into this market.

    The Bull Case
    The bulls have some very compelling arguments of their own. First, recent weakening of the trend on the TLT (NYSEARCA:TLT) seems to indicate that there may be an impending flight from the safety of fixed income instruments to the higher risk assets in the equity markets. The TLT appears to have put in a double top at around $102 and is currently flirting with the 50-day moving average. There's an inherent inverse relationship between the TLT, a 20+ Year Treasury Bond Fund, and the equity markets.

    Secondly, the $TNX (10-Year Treasury Note Yield Index) seems to support this view as it appears the yield on the 10-year treasure note has put in a double bottom at the 29 level. Moreover, the $TNX is currently testing the upper trend line of the April to July downtrend suggesting that market participants are getting ready to shift to an equity strategy.

    Thirdly, the $VIX is at the cusp of breaking down from the April to July bearish pennant, and appears that its set to close below the 200-day moving average for the second day in a row. A shift to an equity environment of lower volatility will clearly be conducive to much higher stock prices.

    For a more detailed analysis of the equity markets, please see Cobra's Market View - easily one of the best technitions I've had the pleasure to follow over the past several months.

    Disclosure: At the time of this writing, the author holds August 2010 puts on the QQQQs. The information contained in this column is not to be taken as either an investment or trading recommendation, and serious traders or investors should consult with their own professional financial advisors before acting on any thoughts expressed in this publication.
    Jul 27 3:55 PM | Link | Comment!
  • Barron's on Apple & Microsoft

    One of my favorite columnists, Eric Savitz, published a well-balanced piece comparing Apple and Microsoft in Barron's today. Its definitely worth a read. He captures, what I think, is a very key concept when assessing these two companies - that one is a value play and the other a growth stock. As I noted in an article I published at Fortune this past Monday, I'll be running an in-depth comparative analysis of these two companies in the coming weeks.

    While some regard Eric as generally bearish or skeptical on Apple, I've had a chance to follow a lot of his writing over the years and can attest that those concerns are relatively overstated. He's actually very balanced and fair in his writing focusing on both the positive and negative aspects of the company.

    As most of wall street and the media seems to place Apple on a pedestal, I think it's important to keep in mind that there are always two sides to every story, and Eric does a excellent job of reminding us of this. You can read Eric's article here.

    Disclosure: At the time of this writing, the author holds August 2010 puts on the QQQQs. The information contained in this blog is not to be taken as either an investment or trading recommendation, and serious traders or investors should consult with thier own professional financial advisors before acting on any thoughts expressed in this publication.

    Jul 24 3:14 PM | Link | Comment!
  • Apple to Surpass Microsoft in Revenue this Quarter
    After 30-years of living in the shadows of Microsoft, Steve Jobs and Co. will likely surpass its archenemies in Revenue this quarter. And as Apple’s staggering growth rate continues, its unlikely that Microsoft will be able to resume its dominance over the iPhone maker anytime soon.

    While doubts as to whether Apple (NASDAQ:AAPL) deserves to hold the second largest market cap in the U.S. continues to mount, one thing it is clear: Apple has closed the revenue gap on Microsoft (NASDAQ:MSFT), and looks to assume full supremacy over the software giant going forward.

    And though Apple still has a ways to go to compete with Microsoft in terms of net income due to Microsoft’s stunning operating margin, many will be surprised to learn that Apple will actually post more revenue than its rival in the 2010 and 2011 fiscal years.

    In fact, when Microsoft reports second quarter calendar results after the bell this afternoon, its likely that Apple will have surpassed Microsoft in revenue for the first time in the company’s recent history - and that it will continue to do so in the future. Apple reported $3.25 billion in net income ($3.51) on a whopping $15.7 billion in revenue on Tuesday, smashing analyst expectations, and reporting more or less in line with my forecast.

    Microsoft, on the other hand, is expected to earn $4.1 billion in net income ($0.46 in EPS) on $15.26 billion in revenue when it releases results after the bell today. That is nearly $500 million less than what Apple reported in revenue this quarter. And while Microsoft also regularly reports upside surprises making it very possible that it could edge out Apple in revenue, the gap between consensus estimates and Microsoft’s actual results is nowhere near as wide as it is with Apple’s results.

    The chart below details a quarterly revenue comparison of Apple and Microsoft over the past few years. As one can see from the chart, Apple looks to surpass Microsoft’s quarterly revenue for the first time in recent history. More importantly, while Microsoft’s revenue growth appears to have slowed in recent years, Apple continues to post one record quarter after another.Since Microsoft and Apple are on a different fiscal year, the chart realigns their results to make them comparable on the calendar year.

    So the big story in tech earnings this week is whether history will be made in the decades-long battle between Apple and Microsoft, or whether Microsoft will postpone the inevitable and maintain its dominance over Apple for at least one more quarter.

    And even if Apple doesn’t beat Microsoft in sales this quarter, it will certainly do so next quarter and by quite a large margin. For the September quarter, analysts expect Apple to generate approximately $18 billion in revenue compared to a projected $15.16 billion expected out of Microsoft.

    So even conservative analyst estimates already put Apple ahead of Microsoft by nearly $3 billion next quarter. My estimatesput Apple ahead by $3.8 billion as I expect Apple to record nearly $18.9 billion in revenue. You can see my track record on Apple here.

    What’s even more surprising is that Apple will likely far surpass Microsoft in revenue for the entire 2010 and 2011 fiscal year. In fact, I’m looking for Apple to record $81.6 billion in revenue in 2011 – that’s about $11.6 billion above the $70 billion I’m expecting out of Microsoft. Even the 2010 and 2011 conservative analyst consensus puts Apple well ahead of Microsoft.Thus, it’s looking increasingly likely that this quarter sets the beginning of a new age where Apple will regularly post higher revenue than Microsoft going forward.

    The chart below compares Apple and Microsoft’s annual fiscal revenue for the past several years. While quarterly data must be compared on the calendar year to show a side by side comparison over a particular 3-month period, yearly data can be analyzed on the fiscal year.

    Yet, when it comes to questions as to which company ought to have a larger market capitalization, total revenue is but a single of several factors that should be considered. Net income growth, total net income, total net cash, cash flow, book value, total assets and the economic sensitivity of each company’s primary operations are just a few of those other key factors.

    So while Apple will be surpassing Microsoft in revenue in the near future, that in and of itself doesn’t necessarily mean that Apple automatically ‘ought’ to have a larger market capitalization.

    Though under closer scrutiny one will find that within the next year or so, Apple will soon not only record more revenue than Microsoft, but will earn more in net income, generate a larger amount of cash, and out-pace Microsoft in terms of growth in net income and revenue.

    Still, Apple does have a ways to go before it will surpass Microsoft in net income. Due to Microsoft’s extraordinarily high operating margin, the only way Apple can beat Microsoft in earnings is by simply outpacing it in sales. Since Microsoft pushes more of its revenue to the bottom line, Apple will have to significantly outpace Microsoft in revenue to win on the net income front – something that Apple will probably do in 2012. The chart below compares Apple and Microsoft’s net income for the last several fiscal years, and offers projections for 2011.

    Though these two companies no longer really operate in the same space as they once did in the past, Apple turning its focus on the consumer and Microsoft on enterprise spending, both companies are dominating their respective industries. Yet, several Microsoft investors have argued that it’s somehow inappropriate to compare Apple to Microsoft since Apple is a device maker and Microsoft an enterprise software maker. Nothing can be further from the truth.

    Such arguments not only reek of the highest level of financial irrationality, but they are also rooted in a dangerously mislead ideology. Any two companies that make money are automatically comparable.

    For while the comparison may or may not be appropriate in a cross sector analysis, any two publically traded companies can in fact be compared on a fundamental return on equity basis. That much is clear. If a multi-trillionaire wanted to buy either of these companies, a fundamental comparison is not only appropriate, but required for sound due diligence.

    Moreover, even in a cross sector analysis where an investor wishes to determine which company is best in breed, Apple and Microsoft do in fact participate in the technology sector despite little operational overlap between the two companies. It’s not as if Apple is a pharmaceutical company, and Microsoft an oil refiner. Such is a rudimentary concept of finance, and the average investor would do well to understand it.

    Thus, what’s left to be decided is which of these two tech giants deserves to be crowned the supreme leader of the tech sector as a whole? The answer to that question will be addressed in future articles I’ll be writing over the next few weeks.Stay tuned.

    See also:
    Earnings Smackdown: The best and worst Apple Analysts
    Apple Smashes Expectations in its Fiscal Q3 Earnings Report

    Disclosure: At the time of this writing, the author holds no position in the equity markets. The information contained in this blog is not to be taken as either an investment or trading recommendation, and serious traders or investors should consult with thier own professional financial advisors before acting on any thoughts expressed in this publication.
    Jul 22 2:43 AM | Link | Comment!
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  • Bullish Cross Professional is in testing phase. If you like my analysis, please give feedback here.
    Jun 2, 2011
  • Apple (AAPL) is now trading under a 16 P/E ratio.
    May 16, 2011
  • Believe it or not, Apple is only trading at 8.68 times my 2012 earnings estimates of $39.15 in EPS on $149.46 billion in revenue.
    May 15, 2011
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