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Can 'NBA' Make A Comeback?

Daily State of the Markets
Wednesday Morning - April 25, 2012

Good Morning. A good chunk of first quarter's joyride to the upside was attributed to the performance of a little company named Apple (NASDAQ:AAPL). What is now the world's largest company had what has come to be known as an outsized impact on many of the stock market indices, causing one analyst to dub the U.S. stock market the N.B.A. market - Nothing But Apple (as in nothing but AAPL was needed in a portfolio).

However, after hitting an intraday high of $644 on April 10th (representing a gain of 59% in 2012 alone), the stock has struggled a bit. From that high hit just 11 trading days ago, AAPL has declined more than 13%, while the S&P fell less than 4%. Although most analysts will agree that Apple's stock is a bargain compared to many of its high-flying compadres and should be valued at anywhere from $800 to $1000, it seems that our furry friends in the bear camp just can't help but remind anyone who will listen about all the possible negatives that could befall a company that has seen its stock soar more than 6-fold in a little over 3 years.

With the stock market in a consolidation mode at the moment, any number of the glass-is-at-least-half-empty crowd has pointed out that Apple could sink the entire ship. The thinking is that you'd best sell everything you've got including your Chipotle (NYSE:CMG), your Google (NASDAQ:GOOG), your Estee Lauder (NYSE:EL), and your Nike (NYSE:NKE) because Apple is sure to go the way of Netflix (NASDAQ:NFLX) or RIMM. "Just you wait and see," I've been told.

It seems there has been talk of the company being forced to cut guidance going forward because of delays in China. There is the patent infringement suit with Motorola Mobility (NYSE:MMI), where a judge actually ruled against Apple on Tuesday. There is the antagonistic relationship with the carriers that are forced to help subsidize the sale of Apple handsets. There is the reduced average sales price of iPads (now reportedly at $559 vs. $584). There is the report from AT&T that iPhone activations actually fell from last quarter. There are the lawsuits. And there is the fact that somebody called this the NBA market - meaning that the stock just might be a tad overdone in the short-term. All of the above has led some fast-money traders to think that shorting AAPL might just wind up being a pretty good trade.

Well, until yesterday afternoon's earnings report that is. From Tuesday's closing price of $560.28, the stock took off after the company reported $12.30 a share of earnings on $39.2 billion in revenue. And within an hour of the report, AAPL shares traded as high at $604.22. Not a bad little trade if you were brave enough to step in front of the train that appeared to be bearing down on investors in the stock yesterday afternoon.

So, what does this mean for the overall market? Will Apple be able to once again lift all ships in the near term? Can the NBA market return to the form seen in the first three months of the year? Or will the stock follow its pattern of selling off after it reports earnings and take the entire market with it?

Frankly, it is important to recognize that this is not 1999 and as such, Apple doesn't move the entire market the way Cisco Systems (NASDAQ:CSCO) once did. And while a strong move by Apple may continue to have an outsized impact on the S&P 500, even a move of 20 quick points isn't going to change the fact that this market remains in a consolidation phase. And until the SPX can move above 1420, the bulls may need to curb their enthusiasm. Unless, of course, your portfolio is made up of N.B.A.

Turning to this morning... It appears that AAA (all about Apple) or NBA is indeed making a comeback as Asian markets followed the post-Apple futures higher. European markets are also up this morning after the ECB's Draghi basically said there is no reason for the central bank to ramp up assitance programs. In the U.S. futures are pointing to a sharply higher open.

On the Economic front... The Commerce Department reported that Durable Goods orders were down -4.2% during the month, which was far worse than the consensus expectations for a decline of -2.0%. When you strip out the volatile orders for transportation, orders fell by -1.1%, which was also below the consensus for +0.3%.

In addition, we'll get the Fed announcement at 12:30 pm, the FOMC forecasts at 2:00 pm, and Bernanke's press conference at 2:15 eastern.

Thought for the day... Keep in mind that not every person's opinion is worthy of your attention and/or consideration...

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

  • Major Foreign Markets:
    • Australia: NA
    • Shanghai: +0.75%
    • Hong Kong: -0.15%
    • Japan: +0.98%
    • France: +1.58%
    • Germany: +1.21%
    • Italy: +2.59%
    • Spain: +2.09%
    • London: +0.07%
  • Crude Oil Futures: +$0.70 to $104.25
  • Gold: +$0.80 to $1643.00
  • Dollar: higher against the yen and pound, lower vs. euro
  • 10-Year Bond Yield: Currently trading at 1.99%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +10.43
    • Dow Jones Industrial Average: +51
    • NASDAQ Composite: +51.17

Positions in stocks mentioned: AAPL, EL, CMG

For more of Mr. Moenning's thoughts and research, visit StateoftheMarkets.com


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Disclosure: I am long AAPL, CMG, EL.