The Apple

The Apple (AAPL) has been one of the best performing stocks in the US in recent years. Today I'm stepping out on a limb and claiming that the recent action looks like a classic example of "buy on the rumor, sell on the news."

The innovation of the ipod has propelled Apples earnings, creating the story stock it has been over the last 5 years. In 2003, the stock was trading below $10. Today, June 19, 2007, the stock closed out at $123.66. That's a greater than 1100% gain, yeah 1100%, that is what investing is all about!

Recently there has been a lot of hype regarding AAPL and the release of their new iphone ("rumor") - scheduled for June 29 ("news"). AAPL has been all of the recent talk in chat rooms and airways. One lesson I've learned in my short tenure in markets is that when everybody is talking about an investment like it will never go down, you're too late or it's time to think about selling.

AAPL is up over 40% this year. With recent quarters showing slowed demand for the ipod, investors are looking for growth in other places (the iphone). It seems fitting that the ipod has possibly saturated its market since everybody and their mom has one or even two. Other players are starting to enter the portable music space as well. AAPL and investors have turned to the hyped iphone for growth, but how much is the iphone actually going to add to the top and bottom line, it's all speculation now, we'll know the truth in coming quarters. Don't get me wrong, Apple is a tremendously healthy company, run by one of the most successful business men of the 20th century - Steve Jobs - and with over $12 billion cash in the bank, they have a lot going for them in the future.




What I'm trying to say is with the recent run up in price and "lunch room hype" I've been hearing all over the place, as an investor I'd keep my eyes peeled for an unfolding of the old Wall Street adage "buy on the rumor and sell on the news." I could always be wrong, as you can see from the chart above the stock is in a strong pattern and I don't like to bet against the grain, but if you're looking to add AAPL to your portfolio I think it's a time to be very hesitant. If you're not already enjoying the ride, I believe it would be smarter to wait until the news passes. If you own the stock don't get caught up in all the hype, think about taking a little off the table. It's okay to take profits - you're making money! And in the short term, look for signs of increasing selling volume and decreasing buying volume as a possible top in the stock.

Out of Hibernation

After a 25% move in the broad indices since mid '06, it looks like the bears might finally leave a footprint. The major indices, specifically the S&P 500 and Dow 30, have not had a significant correction of 10% or greater since the bears ran the show in 2002. Marketeers consider corrections within bull markets healthy and constructive. For the trader and investor a correction should be looked at as an opportunity to buy good stocks at lower prices , presenting more favorable risk/reward scenarios. Historical corrections within bull markets can be up to 10%. If we were to see 10% lower prices in the near-term the uniformed and novice trader might get a little spooked. A correction of that magnitude would put the S&P 500 in the 1,386 range.

Friday June 8, closed out one of the worst weeks seen since the dubbed "Shanghai Surprise" experienced in late February. The S&P closed down just about 2.5% for the week. Thursday saw the most blood, closing at the low, with a 1.8% decline. An important factor on the day was increased volume, the NYSE trading a whopping 1.9 billion shares which is significantly higher than the 1 month average of 1.53 billion. Amazingly, 1.9 billion shares equals a dollar volume amount of $82.6 billion traded in just one day - I'll take just a little bit of that, please!

An almighty test is looming next week. The 50 day moving average (dma) is one of the most followed technical indicators on the globe. As you can see from the chart below the major averages are hovering right at the 50 dma. This should act as some sort of support, but for how long nobody knows. If prices were to break the 50 dma, we could only assume a possible next target would be the 200 dma (the other most followed technical indicator on the globe).


Don't forget that the trends of these averages are upward sloping which should lead us to believe that short-term lower prices is an opportunity to pick up good stocks on "sale". There are good reasons to be bullish in the current time including global economic growth and massive M&A action. Always, economic conditions can change, but if it gets real bloody on the street and everybody is running for the hills we should be looking to back up the truck.