Monday, December 2, 2013

Apple Inc. (NASDAQ: AAPL)

Apple Inc. and its wholly-owned subsidiaries design, manufacture, and market mobile communication and media devices, personal computers, and portable digital music players worldwide. It also sells software, services, peripherals, networking solutions, and third-party digital content and applications related to its products. The company offers iPhone, a line of smartphones that comprise a phone, music player, and Internet device; iPad, a line of multi-purpose tablets based on Apple's iOS Multi-Touch operating system; Mac, a line of desktop and portable personal computers; and iPod, a line of portable digital music and media players, such as iPod touch, iPod nano, iPod shuffle, and iPod classic. It also provides Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and various accessories, service and support offerings; and manufactures the Apple LED Cinema Display and Thunderbolt Display.
To review Apple's stock, please take a look at the 1-year chart of AAPL (Apple, Inc.) below with my added notations:
1-year chart of AAPL (Apple, Inc.) Notice the rising wedge I have outlined on the chart of AAPL. A rising wedge price pattern is essentially a type of triangle formation in which the stock (AAPL) has formed an up trending resistance line and an up-trending support level (red). These two trend lines converging on one another combine to form a rising wedge, which is usually a terminal pattern (bearish). Confirmation of this pattern would occur if the stock broke the up-trending support.

The Tale of the Tape: AAPL has created a rising wedge pattern, which should lead to a break lower. A short trade could be entered on a break out of the bottom of the wedge, which currently sits near $500. If a trader believes the stock has higher prices in it's future, a long play could be made at that support with a stop placed below that level.
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What Happens When This Chart Hits Zero?: Percentage Bullish vs Bearish

What happens when there's no one left to sell to?

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Dividend Theory Suggests Caution

This theory can also be applied to the Dow Jones Industrial Average (INDU), which has also displayed a long-term, repetitive tendency to fluctuate between high and low dividend yield extremes. Indeed, looking at broad market behavior, we've seen three signs of Overvalued conditions.

1) the percentage of Undervalued stocks falls to 17% or less;
2) the percentage of Overvalued stocks is greater than the percentage of Undervalued stocks;
3) the dividend yield of the Dow Jones Industrial Average declines to within 10% of its historically repetitive area of low yield.

When the above Overvalued conditions have occurred simultaneously, there is historical precedent, or a tendency for, a broad market decline sufficient to remove these conditions as areas of concern.

Stated in a less clinical way, when these three red flags have appeared at the same time in the past, the broad market has declined enough to no longer be Overvalued.

The purpose of identifying trends and being aware of tendencies in the stock market is to avoid The Big Loss. Remember, the primary objective of investing is to realize a return on investment.

I'd much rather be singing Kumbaya with the rest of the punditry, but that's not what we are all about. Investing is a business, not a game of chance. To survive, as an investor, you have to buy right, hold tight, and take flight when the time comes.

Considering there have been two major bubble bursts in the last 13 years, one would think that investors would be smart enough not to get sucked into the “this time it's different” mantra, which is currently on full display in almost any medium you choose.

I took a call the other day from a columnist asking me about 3M Corp. (MMM). “What do you think about 3M, Kelley?”

“Great company, love it; have lots of subscribers and clients with long-term positions in it.” “What do you think about buying it in here?” “No way, can't do it.”
“Three analysts just upgraded it. What are they seeing that you aren't?”

“I have no idea what their metrics are and how they measure value, but the way we analyze companies is identifying their dividend yield patterns and seeing whether they are within 10% of their low-price/high-yield area or the other way around. Right now, they're too close to their Overvalue area to buy.”

He then said the two magic letters; QE. “I think you're missing the boat here, Kelley. As long as the Fed is pumping, you can throw history out the window. We're in a new era man; the markets' got no place to go but up.”

And there you have it; this time is different. Funny, but I could swear I heard the same thing in 2000 and 2007.

Forget the facts, data, trends, and tendencies. When the “market has no place to go but up,” mentality kicks in, and what you'll have is a whole bunch of folks hoping and holding all the way down; it happens every time.

I know there are boat loads of folks who disagree with me; so be it. With the resilience this market has displayed, it is hard to blame them. “Facts are stubborn things,” I believe Samuel Clemens said. So are trends.
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US Weekly Economic Calendar

time (et) report period Actual CONSENSUS
8:58 am Markit PMI Nov      
10 am ISM Nov.   55.0% 56.4%
10 am Construction spending Oct.   0.5% 0.6%
TBA Motor vehicle sales Nov.   15.6 mln 15.2 mln
8:15 am ADP employment Nov.
176,000 130,000
8:30 am Trade deficit Oct.   -$40.5 bln -$41.8 bln
10 am ISM nonmanufacturing Nov.   55.5% 55.4%
10 am New home sales Oct..   428,000 421,000
2 pm Beige  book        
8:30 am Weekly jobless claims 11/30
8:30 am GDP revision 3Q   3.1% 2.8%
10 am Factory orders Oct.   -0.7% 1.7%
8:30 am Nonfarm payrolls Nov.   180,000 204,000
8:30 am Unemployment rate Nov.   7.2% 7.3%
8:30 am Personal income Oct.   0.3% 0.5%
8:30 am Consumer spending Oct.   0.2% 0.2%
8:30 am Core PCE price index Oct.   0.1% 0.1%
9:55 am UMich consumer sentiment index Dec.   74.0 72.0
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