Mild Profit-Taking.....

We were due for a rest and maybe some end-of-the-week profit-taking, but all the bears could manage was a close just a few pennies into negative territory. It was a flat day of action, but breadth was weaker for the first time in a while. Volume picked up a little, but for a market at its highs, it was a very quiet day. The dollar has some notable weakness, but that was not a market driver like it has been in the past. Oil and steel did well, but gold was in the red. Retailers were strong on good sales news, but there has been a tremendous run in the group, and it looks extremely extended at this point. 

Of course, almost everything is extended after the market run over the past month. It has made for some challenging trading if you don't like to chase stocks that have made big moves. Unfortunately, for the bears, there are still very few signs of weakness. Other than being overextended, there are no glaring negatives in the technical action. Of course, there are there are plenty of very bearish fundamental arguments that can be made, but that has been the case for a year now, and it just hasn't mattered very much. You would think that we have already priced in all the possible positives, but arguing with this market is not a good way to make money. Almost all of our big rallies over the past year have started at the beginning of the month and then we would struggle in the last week or two of the month. September, October and November last year are particularly good examples. We reach the midpoint of March next week, so I'll be watching for this pattern to repeat itself. 

Turn your clocks ahead this weekend! 

A Rally With No Joy.....

The most bullish thing about this market is that just about everyone is mystified by the very persistent strength. Even some of the perma-bulls are declaring things too extended to buy at his point. For a while, it looked like we might actually end up with a little red on the screen, but with so many folks rooting for some weakness, it wasn't too difficult for the bulls to pull off a late-day squeeze that took us out at the highs. The Russell 2000 is now up nine straight days in a row and 20 of the last 22 days, while the Nasdaq 100 is up 11 days in the row. 

The move today was small and came on declining volume, but anyone trying to call a top was very frustrated once again. One of the most interesting things about this market is that there sure doesn't seem to be a lot of joy or excitement. It often felt the same last year when these sharp upside moves were more a cause of frustration rather than celebration. It is a much different feeling than what we had back in the bubble days or when we had some big rallies a few years back. I'd love to provide some fresh new insights about this market, but the situation has been the same for over a week now. We are very extended and have had no consolidation, and we are showing no signs of weakness at all. I think the bulls were on a mission for the S and P 500 to make a new high over 1150. We did manage to close just a few cents above that level, so now we have a new high for the year in that index. The 1150 level is the very obvious place to set buy stops. 

The classic scenario is that we break to a new high and trigger the buy stops, and that causes shorts to cover and new buyers to jump in, and then we reverse. Nothing about this market has been very logical lately, so I'm not too quick to embrace that scenario, but if we are ever going to reverse, you have to be looking for a situation like that. Trading this very lofty market is not an easy task, but it is the nature of the beast, and we just have to keep at it. The key to success is to just keep plugging along......

Still Chugging Along...

Although the gains weren't that big, the winning streak continues. The IWM is now up 19 out of 21 days and for eight days straight.  GOOG was the main driving force behind the Nasdaq 100 today, the second-best index of late after the Russell 2000. The S&P500 is next and it stalled right under the recent highs at 1150. The DJIA is bringing up the rear, but is in very good shape, at just under 10,600. All these indices are strong, but they are also all extended to some degree, though that has been the case for a while and is starting to sound like a quaint, but meaningless label. Breadth was quite good once again, with about 3,800 gainers to about 1,950 decliners. Volume even picked up today, which is something we haven't seen too often during this run. 

Even though the action was very upbeat, there wasn't any group that really distinguished itself. Semiconductors and small banks were the leaders, but oil bounced around and there wasn't any group that market players chased aggressively. This whole run over the past month hasn't really had any red-hot pockets of momentum. A lot of things have acted quite well, but there isn't any one group that is attracting the hot-money players. Another positive day obviously doesn't do much to alleviate the overbought technical conditions, but the pace of the advance has slowed a little and that is helpful. The market doesn't have to go down for us to become less extended. All we need is it for it to churn for a while and not do a whole lot. That sort of consolidation is healthy, because it allows for stocks to move from weaker hands inclined to take profits into stronger hands trying to build longer-term positions. When we don't consolidate, there is a greater risk that a flurry of profit taking will hit and produce a sharp dip lower, keeping new buyers on the sidelines for a while. Although all those up days in a row sound very good, it isn't an easy market to navigate for the active trader. We'll have a shake-up at some point, but for now we just have to keep chugging along and stay very vigilant......

Some Random Tech Stuff/2010 Themes

So NVDA is higher on tight chip supplies? We've know that for weeks if not months. I think NVDA should be much higher on these chip constraints. However, they are in the RMBS crosshairs though I doubt the net impact to NVDA is nearly as robust as many of RMBS’s other targets.


I like both of the above names. The stock just has barely responded to incredible news. This is akin to how AAPL traded post earnings and initial iPad news and now it's exploding. I expect RMBS and NVDA to follow suit in the coming weeks.

Web-based video (3-D TV?), bandwidth, and touch-screen technologies are coming to the fore again in 2010 as the promise of 2000 will become realized in 2010.  Too early to see this yet, but I think we will hear about a very compelling broadband stimulus package within weeks/months.....

long AAPL

Are We Extended? Maybe, But That Doesn't Mean We Can't Go Higher....

The dip-buyers pounced on a little gap down this morning and were buying relentlessly until about 2 p.m. EST, when a little profit-taking finally hit. That pushed the Naz back into the red momentarily, but once again the dip-buyers showed up, and we managed a close in the middle in the intraday range. Market players are so used to this market that never seems to dip that our little afternoon swoon actually felt more significant than it really was. Overall, it was still a victory for the bulls. Breadth was positive, and there wasn't any real notable weakness. Retailers, oil and semiconductors lagged, but financials were perky on rumors about possible restrictions on shorts. 

The technicians are out there saying it just isn't possible to be wildly bullish when we "need" consolidation so badly, but the old adage about not fighting the trend can't be overlooked. We really need a better shakeout to set up some better opportunities, but this market seems to be in no hurry to make things easier for anyone......

Same Stuff

It ended up being a pretty flat day, but the IWM is now up 18 of the last 20 days and we are still extremely overbought. Just about everyone agrees that this market could use a little rest ... which is probably the main reason that we aren't getting it. Although the major indices were slightly red and volume was light once again, we still had good breadth and little notable weakness. The dollar bounced back intraday, which put a little pressure on gold and oil but steel, homebuilders, retail and technology stocks offset weakness. So once again we are in this position that we found ourselves in many times last year: We have gone straight up on light volume, have cut through resistance with barely a pause and are technically overbought but we are showing no signs of weakness. The easiest thing in the world to do here is to look for some weakness or profit-taking, but that has been the easiest thing to do for a week now. 

Sooner or later we will pull back, but a lot of bears have already gotten in deep trouble by jumping in too early.  Many bears see the China stocks providing some good opportunities, but until we actually see some selling they're not pressing the dark side. Shorts may look to hit the CSCO news, but I'm not so sure they'll be successful......

AAPL Is A Hedge Fund Battleground Stock....

For hedge funds, AAPL is the battleground of a broad market war. If they can move Apple up, the rest of the market will follow. If they can move Apple down, the rest of the market will follow.

Since October, this Apple slingshot action has happened six times; it's time to document a seventh. On Feb. 25, Apple was at $196. and it jumped $23 in the next six trading days. The slingshots move in approximately $20 increments.

So what should we do now? Will AAPL drop $20 like it normally does, or is this finally the run that takes Apple up to higher levels? One of these times Apple will break the trend and won't selloff. The strong fundamentals of this stock are based on its increasing rate of earnings per share that is being generated from market-share gains of the iMac and iPhone; as well as the introduction of the iPad.

Earnings growth is reason enough for the stock to go up. What makes the Apple story especially intriguing is the valuation. Casual investors tend to think that the current price is high. Nothing could be further from the truth.

From a valuation standpoint, this stock hasn't been lower since Steve Jobs returned to the company more than 10 years ago. The recession punished Apple by taking away its P/E multiple. If the market decides to return the Apple multiple back to its norms, it will cause Apple stock to receive a double whammy of improved earnings and an increasing multiple at the same time.

Earnings per share of $14 in 2010, in addition to a P/E multiple of 25, brings us to a stock price of $350. Apple at $350 wouldn't even be expensive. My definition of expensive would be a P/E multiple of 40 - based on AAPL's expected growth rate. Consider that AMZN has a current P/E multiple of 63, with a lower growth rate than AAPL.  Apple with a P/E multiple of 40 would equal a $560 stock price and if they got the Amazon 63 it would put Apple at $882. Will Apple get their cake (earnings expansion) and eat it too (multiple expansion)? We shall see. This is setting up to be the trade of the year.....


long AAPL