How Much Lower Can Apple Fall?

Apple shares have fallen as much as 17% since their September all-time high. Based on Apple’s humongous gains since 2003 the down side potential is quite large, but here’s one important support level to watch.

Did somebody upset the “Apple cart?” Apple’s earnings disappointed and the stock closed lower 6 out of 8 trading days. How much lower can Apple fall?

For readers of iSPYETF Apple’s 17% drop doesn’t come as a surprise. This September 18 article posted on iSPYETF (Technology Investing for Beginners – You Can’t Lose Money with Apple Math) warned that:

“Common sense and seasonality suggests that Apple is soon due for a reality check (a. k. a. lower prices). Since Apple is the MVP of the technology sector, it’s likely that the Nasdaq QQQ ETF and SPDR Technology ETF (XLK) will follow Apple’s direction.”

The September 12, Profit Radar Report (which identifies profit opportunities for subscribers) issued this trading recommendation: “Thus far Apple has been able to close above support at 660, but RSI is deteriorating. Aggressive investors may short Apple (or buy puts or sell calls) above 700 or with a close below 660. Obviously, there is no short Apple ETF and if you don’t have a margin account set up, you may consider using the ShortQQQ ProShares (PSQ), which aims to deliver the inverse performance of the Nasdaq-100 (Apple accounts for 20% of the Nasdaq-100).”

How Low Can Apple Go?

AAPL has rallied from $6 – $700 since 2003, so obviously there’s plenty of down side risk. The more appropriate question is: Where’s the next support for AAPL?

Below is an updated version of a chart that was first featured on this site on August 22 (Apple Bullies the Nasdaq and S&P 500 But May Soon Disappoint Investors).

We’re looking at a log scale chart of AAPL prices with two purple trend lines and a black parallel trend channel. The black trend channel contained prices since April 2010 and alerted us of the recent Apple top.

AAPL pulled away from trend channel resistance a few weeks ago and is now approaching the upper purple trend line. This trend line coincides with the 200-day SMA at 588 and will be important support. How AAPL reacts to this support may well set the stage for the Nasdaq and S&P 500.

The Profit Radar Report looks at all major markets (and some major players like Apple) to identify high probability, low-risk trading opportunities (or upset Apple carts).

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

How Will Hurricane Sandy Affect Stocks and the U.S. Economy?

Hurricane Sandy has shut down the New York Stock Exchange. The last time a natural catastrophe forced Wall Street to go into hibernation was Hurricane Gloria in 1985.

Even though trading at the NYSE has halted, investors never stop looking for the next opportunity. What sectors will be most affected by this or any other hurricane and are there any profit opportunities?

Insurance Sector

It’s yet to be seen what kind of damage Sandy will cause. According to the National Oceanic and Atmospheric Administration (noaa.gov), Katrina was the most expensive hurricane with damages of $145 billion.

Someone has to pay for that damage and insurance companies (that’s what we have insurance for) will end up paying a fair share of the repairs.

Property and Casualty Insurance companies collected about $471 billion worth of premium in 2010. According to a report by the Congressional Research Service, done right after hurricane Katrina devastated New Orleans. The net profit earned on the $471 billion worth of premium should be about $40 billion.

The same report states that: “Most insurance experts would agree that the $100 billion-plus catastrophic event remains a challenge for the U.S. property and casualty insurance industry.”

A common sense approach to investing suggests to stay away from the insurance sector and ETFs like the SPDR S&P Insurance ETF. Of course, the ultimate cost of any disaster will be passed on to policyholders via increased insurance premiums.

Energy Sector

The New Jersey coast is home to more than six large refineries and has a refining capacity of 1.2 million barrels per day. As of Monday, two thirds of the refineries were shut down.

New Jersey refineries account for about 7% of total refining capacity in the U.S. In comparison, the gulf coast accounts for 45% of U.S. refining capacity.

The decreased energy demand of the densely populated East Coast caused by hurricane Sandy could be about the same or more than the loss of refining capacity. This means rising oil and gasoline prices nationwide are far from guaranteed.

In fact, immediately following hurricane Katrina, oil prices dropped a stunning 21%. Hurricanes are not an automatic buy signal for ETFs like the Energy Select Sector SPDR (XLE), S&P Oil & Gas Exploration & Production SPDR (XOP) and others.

Home Construction Sector

Home improvement stores like Home Depot and Lowe’s should attract a big chunk of the disaster prevention and disaster repair dollars spent. The iShares Dow Jones US Home Construction ETF (ITB) has an 8.7% exposure to Home Depot and Lowe’s.

Retail Sector

Will money spent at Home Depot and Lowe’s cannibalize the holiday spending budget? Retailers like Macy’s, Kohls, Gap, Nordstrom, Tiffany, Amazon, Best Buy – all part of the S&P Retail SPDR ETF (XRT) – could suffer from Sandy.

Hurricanes and the Stock Market

What’s the effect of hurricanes on stocks? The chart below shows all major U.S. hurricanes (since the year 2000) in correlation to the S&P 500 Index.

Allison in June 2000 came amidst the tech bubble deflation. Charly, Frances, Ivan, Katrina, Rita, and Wilma didn’t make a dent in the 2002 – 2007 market rally.

Gustav and Ike happened right before the financial sector unraveled in 2008 and Irene landed on shore at a time when we expected a major market bottom.

The August – October timeframe happens to be a tumultuous one for nature and stocks and recent hurricanes coincided with stock market inflection points.

This could be the case again with Sandy. Last week’s Profit Radar Report pointed out that the S&P 500, Dow Jones Industrials, MidCap 400 Index, and Russell 2000 are all above key technical support.

Like a stretched rubber band they should snap back, but if the don’t they’ll break. As such, the next opportunity will likely be triggered by technical developments not hurricane Sandy. The Profit Radar Report will provide continuous updates and trigger levels for the “stretched rubber band” condition.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

Sector ETF Analysis: 9 Sectors – 1 Message: Watch Important Technical Support

The S&P 500 Index is generally sub-divided into nine sectors. How the leading (or lagging) sectors behave can provide valuable forecasting insight. This article takes a look at the three leading year-to-date performers and their technical message.

The S&P 500 Index and the SPDR S&P 500 ETF (SPY) are made up of ten industry sectors. State Street Global Advisors subdivides the S&P into nine popular sector ETFs, called Select Sector SPDRs.

There are ten sectors, but they are condensed into nine ETFs as the technology and telecommunication sector are represented by the same ETF, XLK.

The first graph below provides a visual of the S&P 500 sectors and the sector allocation for the Select Sector SPDRs.

The second graph shows the year-to-date performance of each sector.

Each sector corresponds differently to economic developments and some sectors may boom while others bust. That at least used to be the case. During the 2000 decline about half of the sectors delivered positive returns, the remaining ones negative returns.

Since the beginning of the QE market, most sectors are up, just at a different pace.

Right now, most sectors are just above technical support and are sending the same technical message: Watch out how each sector performs around support. If support fails … watch out.

Let’s look at the technical picture of the three biggest and best performing sectors individually:

Technology:

The technology sector got hit hard in recent weeks. Nevertheless, as of Thursday’s close the Technology Select Sector SPDR (XLK) is up 22.48% year-to-date.

The technical picture for XLK looks plain ugly. XLK dropped through trend line support going back to the October 2011 lows (at 29.65) and the 200-day SMA at 29.19.

The technical picture for the Nasdaq-100 looks similar. December 30, 2011 was the last time the Nasdaq-100 closed below the 200-day SMA. It’s been trading above the 200-day SMA for more than 200.

Here’s a surprising factoid: Since 1990 the Nasdaq-100 had seven streaks of trading above the 200-day SMA for more than 200 days. The first close below the 200-day SMA was bearish only one time.

Owners of Rydex funds have grown very skeptical of the technology sector. The percentage of assets invested into Rydex technology funds has dropped to an all time low.

On August 5, the Profit Radar Report pointed out a similar extreme in the financial sector: “Financials are currently under loved (who can blame investors). Of the $900 million invested in Rydex sector funds, only $18 million (2%) are allocated to financials. With such negative sentiment a technical breakout (close above 14.90) could cause a quick spike in prices.”

The Financial Select Sector SPDR ETF (XLF) rallied as much as 10% after it broke above 14.90.

Even though the technical picture of the technology sector looks quite bearish, there’s reason to believe that the down side is limited. A bullish opportunity may develop soon.

Financials:

The financial sector, represented by the Financial Select Sector SPDR (XLF), is holding up much better than the overall market. The chart for XLF is a bit more decorated with trend lines as the Profit Radar Report has provided updates for XLF since it’s August 6 break out.

Immediate trend line support for XLF is at 15.65. The 50-day SMA is at 15.68. Immediate resistance is at 16.05. Aside from a break of the minor red trend line support, the recent decline hasn’t done any technical damage to the financial sector.

Consumer Discretionary

The Health Care (XLV) and Energy Select Sector SPDR (XLE) are slightly bigger than the Consumer Discretionary SPDR (XLY), but XLY outperformed XLV and XLE.

XLY is just barely holding on to its position above the trend line from the October 2011 low (at 45.60), but the 200-day SMA is not until 44.27. Support based on prior supply/demand inflection points is around 45.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

News Flash: Is Bernanke Going to Throw in the Towel?

Abstract: Former president George W. Bush first appointed Ben Bernanke to run the U.S. central bank on February 1, 2006. President Obama confirmed a second term on January 28, 2010. But latest news suggests that Bernanke is done.

The New York Times reports that Federal Reserve Chairman Ben Bernanke has told close friends he probably will not stand for a third term.

Mitt Romney has made no secret that he would not re-nominate Bernanke if he wins the presidency, but it’s news that Bernanke told friends he wouldn’t go for a third term even if president Obama gets re-elected.

The Fed and the White House declined to comment and Bernanke’s own words from a new conference last month are ambiguous: “I am very focused on my work, I don’t have any decision or any information to give you on my personal plans.”

Bernanke’s term as chairman ends in January 2014.

Treasury Secretary Timothy Geithner already stated that he wants to leave by the end of the year.

Why would Bernanke and Geithner want to leave their prestigious jobs?

Here’s my opinion: Bernanke and Geithner are the center of the financial world. They know exactly what’s going on and what the Federal Reserve can and cannot do.

They know how many skeletons banks (corresponding ETF: SPDR S&P Bank ETF – KBE) and financial institutions (corresponding ETF: Financial Select Sector SPDR – XLF) have in their closets.

They know how good or bad the shape of the European financial system is in and realize the implications of the growing U.S. deficit.

The U.S. economy has hit an iceberg. The Federal Reserve’s “pumps are pumping as hard as they can,” but the ship is still taking in too much water. It’s just a matter of time for the inevitable to occur. Who wants to be the captain of a sinking ship?

But does leaving a ship – damaged but afloat – relieve the captain of his accountability? Perhaps we should ask Alan Greenspan.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

Wall Street Analysts’ Forecasts Surprisingly Accurate – Next Target: S&P 1,575

Here’s a surprise: Wall Street forecasts haven’t been optimistic enough to keep up with stock prices. That’s right, the S&P would actually have to drop about 5% to “catch up” with analysts’ target prices.  This sounds bullish, but it’s not.

If you’ve read my articles before you know that I like to poke fun at Wall Street analysts and use them as a contrarian indicator for stock market analysis. Most of the time that’s pretty easy, because they are wrong more often than right.

Wall Street is always way to optimistic, but something changed a couple of years ago (we all know what changed, more about that later). Surprisingly the one-trick pony rosy forecasts have been pretty spot on. Despite three serious correction since 2009, stocks eventually recovered to reach and surpass analyst estimates.

According to Bloomberg data, the average year-end price target for the S&P 500 is currently around 1,400, about 2% below current prices (a few days ago it was 5% below). Stocks will actually have to drop to get in line with analysts forecasts, that’s rare.

One would think that’s bullish from a contrarian point of view, but it isn’t.

Forecast Mean Reversion Ahead?

Lets look at prior examples when analyst forecasts weren’t bullish enough to keep up with the stock market. Analysts’ forecasts also trailed stocks before the 2000 and 2007 market top, in late 2009, late 2010 and early 2012.

Each prior instance occurred before a sizeable top. The S&P 500 didn’t decline immediately, but several months later any gains were given back every single time it happened (going back 13 years).

Goldman Sachs’ chief US equity strategist, David Kostin, sees the S&P 500 at 1,575 by next year. Oppenheimer’s John Stoltzfus sees 1,585, Bank of America’s Savita Subramanian sees 1,600 and Citigroup’s Tobias Levkovich expects 1,615.

The numbers seem somewhat arbitrary to me, but the common denominator of 15 predictions tracked by Bloomberg is the expectatian of new all-time highs. Is that too much groupthink?

It just might be. In February 2009, a similar cohort of analysts rapidly ratcheted down their end of year price targets and earnings expectations. Stocks bottomed in March and haven’t looked back since.

From blunder to crystal ball, what change made one-trick pony Wall Street analysts look like geniuses?

The non-scientific but accurate reason is QE and other liquidity shenanigans facilitated by the Federal Reserve and ECB. Forecasting a Fed supported market has proven to be like forecasting weather in a green house. Always warm, always dry, and mostly sunny.

Ironically history suggests that periods of accurate or too low analyst predictions tend to lead to some sort of top. Poor analysts, they just can’t earn credibility. Fortunately for them Wall Street bonuses are the highest they’ve been in years.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

Will Google’s Fumble Take Down the Entire Technology Sector?

Due to a combination of facts, Google shares dropped as much as 11% on Thursday before trading in GOOG was halted by the Nasdaq. What caused this meltdown and will it carry over and drag down the Nasdaq and technology sector?

Google couldn’t wait to share its disappointing Q3 earnings with Wall Street. Although slated for an after-hours earnings report, Google accidentally spilled the beans around 12:30 EST.

At first it looked like a refreshing change to Washington’s modus operandi of extend and pretend or snore and ignore. But as it turns out, R.R. Donnelley (the company that does Google’s financial filings) accidentally filed Google’s 8-K form too early.

Heading for the Exits

Surprise turned into disappointment and distain as investors dumped GOOG as fast as they could. At one point GOOG was down $83.43 or 11%. Nasdaq even suspended trading in GOOG. Why the rush for the exits?

Analysts surveyed by Thomson Reuters expected earnings of $10.65 a share and net revenue of $11.86 billion.

The actual profit was only $9.03 a share on revenue of $11.33 billion. Another  major concern was that the average price that advertisers paid Google per click fell 15% from a year earlier. If Google, the king of monetizing advertising dollars, can’t charge top dollars anymore, how will Facebook and others?

What’s Next for Google?

Google is the third largest component of the Nasdaq-100 Index (corresponding ETF: PowerShares QQQ) after Apple and Microsoft. What does Google’s sell off mean for the Nasdaq QQQ and the technology sector (corresponding ETF: Technology Select Sector SPDRXLK)?

GOOG trading volume was through the roof as prices tumbled below the 20 and 50-day SMA and a couple of trend lines. Prices generally stabilize somewhat after large sell offs like this before falling a bit further. A new low parallel to a bullish price/RSI divergence would be a near-term positive for Google. Next support for GOOG is around 660 and 630.

Will Google Drag Down the Technology Sector?

The Nasdaq Indexes and the Technology Select Sector SPDR (XLK) has been much weaker than the Dow Jones and S&P 500 as of late. There were no bearish divergences at the recent S&P and Dow highs. This lack of indicators pinpointing a major top limits the down side of the tech sector.

Key support for the Technology Select Sector SPDR (XLK) is at 29.50. A move below 29.50 would be technically bearish although there may not be much more down side. Traders may use 20.50 as trigger point for bullish and bearish trades.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

VIDEO: S&P 500, Gold and China ETF – Trading Opportunity Update

Due to some sentiment extremes and technical break outs and a break down we saw some contrarian low-risk trading opportunities for the S&P 500, gold and China. The associated ETFs are the SPDR S&P 500 (SPY), SPDR Gold Shares (GLD) and iShares FTSE China 25 Index ETF (FXI).

This video highlights trading opportunities for the S&P 500 (SPY), SPDR Gold Shares (GLD) and iShares FTSE China 25 ETF (FXI).

Additionally it reveals a simple but unknown strategy on how to deal with fake out break outs (or seesaw moves).

Continuous updates are provided via the Profit Radar Report.

VIDEO: S&P 500, Gold and China ETF – Trading Opportunity Update

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.