Apple Falls Flat as Market Rebounds - Is There Really Investor Confidence?

by: Zach Bass November 23, 2008 | about stocks: AAPL / DIA / QQQQ / SPY    

Zach Bass

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This past week will live on in infamy, unless this is just a warm up for the big show. That’s because this past Wednesday (November 19) we broke through the support level that had been holding this market up since our first monumental drop in late September, early October. Since that time we’ve been thrashing about in a flurry of volatility, the likes of which have never been seen before in the stock market. And it its wake, all the world's economic institutions have been brought to their knees.

Well, that support was the last line of defense before the 2002 Bear Market lows. And although most investors thought that it would provide good support for the time being, there is the fear that we might compromise that level quickly. And if we did, there would be little underneath that to hold this market together. On Thursday it happened. We blasted through the 2002 lows, sending shivers down the market’s spine. All hopes were pinned on an oversold rally on Friday (November 21).

The Futures on Friday morning were up slightly, just above the lows, and we stayed that way most of the day except for a nail-biting period mid session. But then, with an eleventh hour rally, the market blasted off, gaining over 6% on the S&P, 6.5% on the Dow, and a little over 5% on the Nasdaq. The Nasdaq has been lagging behind the other two indexes during most of this decline. Apple (AAPL) barely participated in the rally, gaining a measly 2.6% on the day. But more importantly, AAPL failed to regain 85. That’s an important level for Apple as it represents the price just before the introduction of the iPhone back in January of 2007 and it’s a strong technical level as well.

So from a market perspective, all’s good right? And from a technical perspective there are all kinds of positive patterns shaping up. A strong late inning rally, with gains of 5, 6, 6.5% in a mere 60 minutes is encouraging, isn’t it? Under normal circumstances maybe. Bouncing off of such an important level and rallying is all good, but it didn’t make up for the week’s entire losses, as the markets were down huge this week. The S&P and Nasdaq were both down over 8% and the Dow fared a little better down just over 5% for the week. Apple got hammered and was down 8.5% for the week.

There’s a lot of people out there talking up the fact that we bounced off the 2002 lows, as though we’re safe now and the counter rally should ensue. I understand this, it’s gotta feel good to get a reprieve from all this nastiness. And we may in fact get a near-term rally, but don’t let your emotions get the better of you, don’t get all giddy, because it won’t last.

So, let’s look at what some of the potential reasons were for the rally. Probably the easiest correlation was that at 3 p.m. Wall Street got a boost of confidence with a report that President-elect Barack Obama plans to name New York Federal Reserve President Timothy Geithner as Treasury Secretary. I believe that was just a catalyst. The other factors were that the markets were extremely oversold and compressed, they just had to give way sooner or later. Also, we had options expiration, and all those shorts covered to lock in those profits. There was no other news. We didn’t solve the financial crisis, people still can’t get loans, the housing market is a mess, and the CEOs of the Big Three auto manufacturers were sent packing by congress and told don’t come back until you have a plan, cuz we ain’t giving you no money without a plan.

Ok, so the president-elect took a sliver of uncertainty out of the marketplace, if you could call it that. At least we now know who the guy is that we’re gonna pummel when Paulson goes back to being a regular citizen. But that doesn’t change anything with our economic situation. The fear index (VIX) is still sitting at astronomical levels, the fear hasn’t subsided, and while the fear is cranked, we will still see the whipsaw and wild price swings.

The other important factor about these gains on Friday is that leaders didn’t fully participate in all the gains. If the leaders aren’t leading, then how much confidence can you have in the event? I mean look at AAPL. and Google (GOOG). Both had gains well under the index gains, and Apple is largely thought to be the de facto leader of Technology and a proxy for the whole market. Remember that Apple is widely regarded as one of the shining stars through all of this - no debt, tons of cash and still breaking sales records as people are losing their jobs. So, if Apple was flat and failed to retake that important 85 level while the rest of the market was surging, what kind of confidence does that give you that this rally has legs?

Disclosure: Short SPX.

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This article has 25 comments:

  •  
    Nov 23 12:39 PM
    Because at some point all of the shorts have to cover. Smart money stopped shorting in October. Now it is just a bunch of fools being led to slaughter. Good luck on that short position.
    Reply | Link to Comment
  •  
    Nov 23 01:05 PM
    Those funny PC Mac TV ads looked like a killer ad to me, but I guess not... You see, PC has so many companies making ads on PCs , still outspending the lonely Apple in ad dollars by hundreds of times to one. It is just a lightning bolt then nothing...
    Reply | Link to Comment
  •  
    Nov 23 01:07 PM
    It is not like that Apple set off a tornado of ads that continue to pulverize PC trailer trash around for days and months... Nothing like that...
    Reply | Link to Comment
  •  
    Nov 23 01:07 PM
    Apple has to allow Mac apes to copy Macs and accept royalities...
    Reply | Link to Comment
  •  
    Nov 23 01:28 PM
    You typed at lot, but didn't actually say anything.
    Reply | Link to Comment
  •  
    Nov 23 02:19 PM
    All this repeated attention on Apple spinning the direst scenarios. There's only one reason for all this attention on AAPL by zaky, zac's attempt to accelerate fear in a stock that likely has one of the biggest upsides when a market bottom is reached. Hard to respect anyone that deliberately tries to fester fear in a market that just about everyone participating has been hurt to some extent, much less zac's obsessive focus on Apple
    Reply | Link to Comment
  •  
    Nov 23 02:34 PM
    Zack, I'm afraid charts wont help anyone see through the cloud of ash the market is throwing up now. To understand what forces are effecting aapl price, where it may be headed, or otherwise, one should continue to focus on the well documented demise of Hedgefunds. Why? Because aapl is held by many of the remaining big hedgefunds in a higher percentage than other stocks, and although we have seen some hedgefunds reducing their positions in aapl, it is still a favorite and percieved as a sell to leverage other loses. I would encourage people to do some research to see who is holding aapl pie and what the trend looks like i.e has the aapl dumping stopped? The sell off, and recent buying, at the last minutes of market trading have been Hedgefund driven, so it logically follows that aapl will reflect the fund's intent.
    Apple Inc's solid fundamentals make it more of a target for short term profit taking in this downward market: Sell now going down, catch it on the way up. What Friday reveals is a collective perception of any rally now as ephemeral. Eventually things will turn around, and if your colleague, Andy Zacky, is right, that may happen in an explosive fashion come next earnings report in January. If Andy's numbers are close to reality, they will be too compelling to sell on, and there will be a frenzy to get it at that point.
    Reply | Link to Comment
  •  
    Nov 23 06:46 PM
    Zach your agenda should be investigated by the SEC. when the market and apple rally, you are no where to be found. when apple takes a hit, you try to put more fuel on the fire. I checked the stores there are still busy and people and apple fans are still buying. 4 of my friends just bought an iphone last week. another bought a mac pro and he's so excited about.
    Zach you are nothing but a piece of crap and a disgrace to the american society!
    Reply | Link to Comment
  •  
    Nov 23 07:44 PM
    Let's not forget the hype surrounding the Blackberry Storm. Another potential "iPhone killer"? Probably not. My friend tried one and says it feels like it's coming apart as you use it, since the screen must "float" in order to provide tactile feedback. It says a lot about Apple when even a company like RIMM resorts to an iPhone rip-off.
    Reply | Link to Comment
  •  
    Nov 24 08:06 AM
    It cracks me up the way you talk about 'support' at a given price, and then point out that the stock crashes right through it. 'Support' is an imaginary concept. That's why things are always crashing through it - both ways. Imaginary walls are easy to break.

    In good times aapl is driven largely by speculation - not your charts and numbers. The forces currently in play that have wiped away aapl value are much larger than your levels of 'support'.
    Reply | Link to Comment
  •  
    Nov 24 08:23 AM
    SEC will indeed investigate this guy.

    His repetitive single minded messaging is being spouted at every moment that suits his meme...
    Reply | Link to Comment
  •  
    Nov 24 09:11 AM
    Zach, I am comforted by the still-vociferous AAPL fanboy community that I am not missing the boat by having sold my AAPL LEAPs a while back. I plan to use some of the proceeds to buy new Macs in the coming year, and reinvest the rest when we approach lower levels (60? 40? who can say? the market's crazy). There can be no definitive rally in AAPL until the chorus of boisterous fanboys are subdued by their rising losses.
    Reply | Link to Comment
  •  
    Nov 24 09:15 AM
    It's all kinda eerily reminiscent of the gold bugs, and their chants of "gold is money!". After a few months of tanking gold prices, while the Fed was doing exactly what they thought would cause gold to explode, the gold bugs learned to quietly (well, almost quietly) watch the markets and take their cues from the markets instead of their beliefs.

    Sadly, it appears that the tide is starting to turn for the gold bugs, and the evening air will soon be filled with their shrill cries once more.
    Reply | Link to Comment
  •  
    Nov 24 10:16 AM
    Zach, at first you tried to make it sound like you were trying to 'save' investors when you first started 'warning' about the economy and about Apple (while professing to be a fan of the company).

    Now you don't seem to bother with that, you just insist that it must go lower. Why?

    The U.S. has a lot of companies in trouble, including a lot of tech companies such as Microsoft, RIM, and Yahoo. Apple on the other hand is a solid company, that has had success after success, even in this current market. Why not talk down a company that has real problems with it's business? Such as a company that has a new operating system that no one wants (vista), a mobile phone OS that no one wants (windows mobile?) rather than a company such as Apple's who's products are in great demand. (iPhone, OS X Leopard)

    Can you not make as much money shorting other companies that are more easily understood (because they really don't have much technology).
    Reply | Link to Comment
  •  
    Nov 24 12:05 PM
    Because Brewer, I don't give a damn about Microsoft! I'm an Apple guy. And I'm not talking the company down, on the contrary, you'll not find any articles where I say the company is not great. What I'm saying in my market analysis is, that it doesn't matter how great Apple is in this environment, investors need to get their heads out of the fan-boy cloud and look at the reality square in the face. This market is going to bring good and bad down with it, whether you like it or not.


    On Nov 24 10:16 AM brewer wrote:

    > Zach, at first you tried to make it sound like you were trying to
    > 'save' investors when you first started 'warning' about the economy
    > and about Apple (while professing to be a fan of the company).
    >
    >
    > Now you don't seem to bother with that, you just insist that it must
    > go lower. Why?
    Reply | Link to Comment
  •  
    Nov 24 12:40 PM
    I don't like the term "fanboy." It sounds like a gay slur. Well, I like Apple, AND I like women. Do backers of other stocks get called names like this? Just wondering.
    Reply | Link to Comment
  •  
    Nov 24 12:54 PM
    I am simply repeating a widely used term in connection with Apple. Fan obviously refers to Fanatic, and Fanatic Boy simply doesn't roll off the tongue as nicely. I refer to myself as a fanboy, and I'm not gay.

    How about Apple Lemming or Mac Psycho? Would that work better for you, you PC piece of crap!


    On Nov 24 12:40 PM ND wrote:

    > I don't like the term "fanboy." It sounds like a gay slur. Well,
    > I like Apple, AND I like women. Do backers of other stocks get called
    > names like this? Just wondering.
    Reply | Link to Comment
  •  
    Nov 24 01:21 PM
    again, Buffeted makes very intelligent comments. i'm long APPL...it's a great company. i work at a zoo and mentor teens and they ALL want an iPhone or Touch or Mac for the holidays and they are getting them. This is almost true across the board, no matter what income level they're at because they'll take that ONE present and forgo everything else. 'fan boys' and girls..you bet! when i let them play a game on my iPhone, they're hooked for sure:) i'm no kid...i'm a senior, as are some of the other people there..and they also want an iPhone. i think Apple is going to blow the competition out of the water over the holidays.
    i'm not a day trader...i'd like to convert some of your readers to long term investing...it's easier on the emotions.
    Reply | Link to Comment
  •  
    Nov 24 01:32 PM
    "Mac Psycho?" Now THAT has a nice ring. Or maybe iPsycho. BTW: I was being facecious (maybe I should start using a "smiley face") Hope PC in your post means "politically correct." 'Cause I'm a Mac.
    Reply | Link to Comment
  •  
    Nov 24 01:48 PM
    I was just kidding around too. And yes, PC was meant to be Politically Correct. I like iPsycho!


    On Nov 24 01:32 PM ND wrote:

    > "Mac Psycho?" Now THAT has a nice ring. Or maybe iPsycho. BTW: I
    > was being facecious (maybe I should start using a "smiley face")
    > Hope PC in your post means "politically correct." 'Cause I'm a Mac.
    Reply | Link to Comment
  •  
    Nov 24 02:02 PM
    Thanks. I Have a new username. ND
    Reply | Link to Comment
  •  
    Nov 24 02:14 PM
    Zack:
    Whether or not you have a hidden agenda in your AAPL views, I had more respect for you before your slide into the kind of slurs that don't belong here,specifically in your reply to ND:
    "How about Apple Lemming or Mac Psycho? Would that work better for you, you PC piece of crap!"
    Reply | Link to Comment
  •  
    Nov 24 03:24 PM
    AAPL got a nice rally today so far. I don't see it going much lower, even in the short term. And anecdotal though it is, I am seeing many more iPhone's in use all the time, and not just among the well heeled. It's quite remarkable that a product so much better than the competition is available at the same price as the wanna-be products such as the storm.

    And I am seeing more kids with iPhone. Just wait until it is more common to make FREE phone calls with the touch from wifi hotspots. This is working and there is no need to jailbreak the iPod. Sales for iPod are looking quite good for years, and iPhone and Macs. I believe the big money is going to want in as soon as a trend begins upward which is going to happen at some point, probably after the inauguration.
    Reply | Link to Comment
  •  
    Nov 24 04:13 PM
    Take a chill pill, I was only kidding. Look at the exchange above.


    On Nov 24 02:14 PM bobsaf wrote:

    > Zack:
    > Whether or not you have a hidden agenda in your AAPL views, I had
    > more respect for you before your slide into the kind of slurs that
    > don't belong here,specifically in your reply to ND:
    > "How about Apple Lemming or Mac Psycho? Would that work better for
    > you, you PC piece of crap!"
    Reply | Link to Comment
  •  
    Nov 24 09:29 PM
    what a load of bollocks
    Reply | Link to Comment
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