3:45 pm ET: The market sank on negative global growth comments from the IMF (International Monetary Fund). The tech-heavy indices continued to suffer as Apple (NASDAQ:AAPL) dove to an intraday low of $625 before firming up. Yesterday's break in $650 major support also coincided with a break in a head and shoulders pattern that is regarded by technicians as a bearish setup. What this means in lay terms is that a fundamental shift in perception is taking place. One tip-off that Wall Street is losing enthusiasm is today's news that Nomura (a major brokerage firm and investment bank) initiated coverage of the company with a Neutral rating. This doesn't sound so bad but on Apple this is more like a Negative (or Sell) rating--ouch!
Apple reminds me a lot of Deckers (NASDAQ:DECK), the maker of Uggs. Uggs were a fashion darling several years ago with their sheepskin-lined boots a must-have for cold weather fashionistas (and non-fashionistas, too). Profits kept rising and investor enthusiasm evolved into a type of fanaticism, exactly like what's happening to Apple. But tastes change and consumers are fickle. Competition grew and Ugg sales began to slide. Investors, still infatuated with the product and blinded by the belief that profits would continue to grow, began to buy the stock on the dips. But the dips turned out to be no more than pauses in a steady decline. The stock has lost a whopping 70% of its value in just the past year and the sell-off doesn't appear to over. I'm bringing up this example as a cautionary tale to all of you Apple heads who refuse to see that dark clouds may be forming over Mac-land. If you do hold a long position I strongly recommend hedging it and/or begin taking profits. You can always jump back in when the stock has firmed up.
All of the major averages were down today including the Transports (DTX) which took the biggest hit. This directional change does not bode well for a rally especially considering the VIX is beginning to move up. The Nasdaq breaking support at 3085 is another bearish sign. Next stop for that index is 3050 (minor support) followed by major support at 3000. Earnings season kicks off today with Alcoa (NYSE:AA) reporting after the bell. A surprise to the upside could lift the market on tomorrow's open.
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