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Tuesday, February 28, 2012

Apple goes parabolic - stocks looking extended

I have written recently about the possible challenges Apple could face with the loss of Steve Jobs.  My concern stems from my belief that without Jobs driving the bus so to speak, it will be difficult to keep the large team of highly skilled talent in place with so many other opportunities at their feet.  Additionally, Jobs was the "polish" that made new products released by Apple so sleek, so tactile, so ergonomic, and just so cool.  My question is, where will the new products come from that will be needed to replace the iPad, iPhone, and iPod, once those produce saturate the market?  Keep in mind that at some point, as with any product, Apple will run out of customers.  Yes, they can continue to offer enhancements to existing products, but that is never enough to drive continued consistent powerful sales - sales levels that are needed to sustain a very high stock valuation.

As can be seen in the stock chart above, the price of Google shares is going parabolic, meaning that the slope of the price curve is increasing at an increasing rate, or more simply, the chart is going vertical.  This cannot last.  At some point the stock will peak.  Following that peak, stocks typically experience pretty severe declines at a rapid pace.  Apple is also approaching a $500 billion market-cap - the value of the company if you multiply the number of shares outstanding by the current share price.  This is a very large number, even for Apple.  Apple has also appreciated dramatically over the past few months, rallying from the December market lows, when the stock was about $375 to the current $532, or by 42% in just 2 months.

I like Apple's products as much as anyone, but from an investment standpoint, I see some serious risk in the shares of Apple at current prices.  It will certainly take a while for the shine of the latest batch of Apple products to lose their luster.  But unless Apple can continue to develop and release new, equally amazing products, the stock is going to suffer.  The real question is: When will the stock peak?  I can't answer that question, but I can say that I do not want to be holding the shares once the stock rolls over and begins it's inevitable decline.

Wednesday, February 15, 2012

Stocks struggle with technical resistance

Stocks are declining today after attempting and then failing to push up through resistance at the 1,350 level on the S&P 500.  As I have written extensively of late, there is a sizable amount of congestion at the 1,350 level for the S&P 500, and my feeling is that we will see a pull-back in the near-term of at least 5% to 10%.  I would like to see the S&P 500 come back to about the 1,200 level.  If we see a decline of this magnitude or better, I will put my 40% cash position back to work.

Monday, February 13, 2012

Opportunity May Be Knocking, If Stocks Experience a Short-Term Correction - Published in Noozhawk on Monday, February 13, 2012

Greek austerity measures pass parliamentary vote - now comes the tough part

The Greek Parliament early this morning, passed the austerity measures required by the Eurozone Finance ministers for the next traunch of the 130 billion euro/$170 billion bailout.  These austerity measures include massive government layoffs and a 22% cut in the private sector minimum wage.  The problem is that a vote is one thing, and actually implementing and sticking to austerity measures over time is quite another.

Let us not forget that Greece got into this situation by lying to the EU about how much debt they were carrying in the first place; overspending until their debt was something like 130%+ of GDP, and until it was so out of control that they basically had no choice but to crush their own economy to attempt to get it under control to get the loans they need to avoid default.

I have zero confidence that the unstable Greek government can stick to the plan and permanently cut spending as they must, to avoid defaulting on their sovereign debt.  Keep in mind also that a big part of this plan includes cutting the value of their outstanding debt by 70%, which means that the people that loaned them money previously are only getting back a maximum of 30 cents on the dollar.

The only realistic outcome I can see is an eventual Greek default.  Just as with mortgage-holders here at home that borrowed money to buy houses they cannot afford, if Greece is going to eventually default, it would be much better for all of us if they just went ahead and defaulted now, rather than dragging it out for years, only to default anyway at some point in the future.

Greece must submit their overall plan for the repayment of their outstanding debt, which again they plan to only pay back a fraction of the principal amount owed (30%), by February 17th.  They need to make this deadline so that the IMF and EU will release more bailout money, so they can meet a refinancing of 14.5 billion euros that comes due on March 20th.  Under these circumstances, I would submit that Greek politicians are going to say and vote for whatever they have to, to secure the money they need to avoid the default.  Voting for something and actually following through with it are two very different things, however.  Investors would be wise not to get caught-up in any rally based on the belief that Greece has secured its financial future with today's vote.

Wednesday, February 8, 2012

Stocks appear poised for a pull-back, based on technicals

Stocks have rallied dramatically from the December lows, with the S&P 500 gaining over 12% and the NASDAQ up an incredible 15.5%, hitting a new 11-year high - the highest level we have seen for this index since the peak of the tech bubble in early 2000.  Stocks are extremely overbought on a technical basis, and appear ripe for a short-term pull-back of at least 5% to 10%.

In the chart of the S&P 500 above, we see a significant amount of congestion around the 1,350 level.  The high over the past year or so is 1,364.  While we are experiencing a strong uptrend from those December lows, I believe stocks will have a difficult time penetrating the resistance at the 1,350 level, and will most likely experience that pull-back very soon.  Should we advance through 1,350, we could certainly trade up into a new, higher trading range.  In fact, eventually I believe that is exactly what will happen.  I have a 1,500 target for the S&P 500, sometimes during 2012.  However, I do not think we will get through this level before we see a pull-back.  As a result, I have trimmed positions and now hold approximately 40% in cash for stock allocations.  I am still 60% invested in stocks, because, of course, I could be wrong!  I also sold calls against existing positions with March expirations to raise additional cash.

I will look to put cash to work should we get a short-term pull-back, focusing on those sectors that will benefit most from the U.S. economic improvement I believe will come over the next few years.  This would include Technology, Industrials, Financials, and Consumer Discretionary stocks.  I will look at energy in the future, but with oil near $100 per barrel, I am not a buyer.

Wednesday, February 1, 2012

Cramer makes another moronic call

Jim Cramer, once again, make an idiotic call this morning, stating that Apple is "building momentum" and should continue to perform well because they are selling iPhones and iPads.  This after the stock has gain about 75 points in a very short time, and at a point where most people that want to have an iPhone or iPad already own one.  Yes they can upgrade as new versions are released, but the point is that Apple's stock price already reflects the maximum possible impact from tremendous iPhone and iPad sales.  Where are the new products - the next iPhone, iPad, or iPod??  Without Steve Jobs driving innovation, I am not convinced that Apple will continue to release strong products, and without new products that rival the iPhone, iPad, and iPod, I do not believe they can sustain their stock valuation.  As I have written, a strategy where the investor basically does the opposite of what Cramer recommends is probably a winning strategy!