Thursday 15 November 2012

Falling Apple.

Someone has literally yelled fire under Apple stock and the stampede to the exit is resulting in casualties.  What happened to all those projection of $ 1000? Why those analysts are not being shamed publicly? But that is Wall St. for you and that’s what all the talking heads do in the various 24/7 TV channels. Sell snake oils.

If you are holding Apple and find yourself at a loss position, there are two alternatives. Depending on what is your cost, cut the loss. But if you are still holding it now, you may want to hold it till next April-May. Apple will definitely retest $ 700 before we can call it’s all over. 

As of now, I am very disappointed with the bears. Over 60 days ago we had the high in SPX and so far we are down only 8%. It is not even an official correction and McClellan Oscillator is down oversold. It is time for a bounce because there is not much scope for more downside.

On a daily chart, SPX is down almost 3% standard deviation. It will be nice if we get a panic low of another 10 points and I am hoping we will get that low tomorrow. But even otherwise, we had a intraday low of 1345 in /ES (emini or spx futures) and my downside target is around 1340 in futures. So we are very close to a bottom and may be the bottom has been reached or we are almost there. In any case the divergence in VIX is quite telling and I do not how to explain it except that may be smart money knows that a collapse is not yet imminent.

(H/T John Kicklighter)

Both Gold and Nat.Gas had a bit of sell off today. As of now I am looking for $ 4.00-$ 4.10 as the upside in Nat.Gas which is about 8%-10% from here.  We already had 10% upside from $ 3.40. That is more than the downside correction we had so far in equity indices. Gold is suppose to have a bounce in the next two weeks and the moot point is whether it will close above $1800.

Crude again sold off today. What happened to all those shrill cry of all out war in Middle East and crude going through the roof? I think cycles know best. While a bounce in crude is due now along with Euro, the down turn in crude is not done yet.

Except AUD, all other pairs are at odds with the equities. Euro is making good progress against US $. Whatever happened to the collapse of the Eurozone? But we do not want to go long in Euro because this bounce is just that, a bounce.

Overall, I am looking for a quick bottom by tomorrow and a short term bounce. The magnitude of the bounce will tell us if the correction is over but I think we will see more selling after the bounce. Normally the lows will be retested again before we can have all sorts of divergences. And the fiscal cliff is very much a possibility and not sorted out. Many big funds have already sold some of their portfolio and they will sell again in December. So we are not done yet. Like I said yesterday, it will be prudent to reduce the exposure in equities but I don’t buy the collapse scenario yet.

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  1. Apparently everybody wants or expects a bounce.

    My guess is that the market will go the most painful path which is right now - down.

    It's exactly the same situation, just mirrored, when everybody waited for a correction from March till essentially end of May, and then from August till basically middle of October.

    It's going to be long, painful grind down in contrast to the to quick flash-crash (nobody could understand what happened) in August.

    Sometimes I feel like fiscal cliff and everything were scripted in GS headquarter - such amazing trading opportunities it creates. This Fiscal Cliff feels just like a sequel to Debt Ceiling story.

    1. My guess is that probably your guess is wrong. But what do I care anyway. I am not short and I am not going to bottom fish equities. As I said before, there are plenty of other fish to fry without getting burnt.:)

  2. I actually think that my guess is probably wrong too :) Because I do know that I don't know anything.

    But looking at the market that obviously grinds and grinds lower and hearing all around "bounce! bounce! bounce!" I can't help thinking that everybody gonna be hurt. I've heard today an interesting description - "quite crash from 1450".

    But hey, I don't mind bounce... Will jump on the bandwagon too! For now though I'm trying to do what market does.

    Btw, have you see what happened to AUD/USD?

    1. ya, in fact few days back I wrote that AUD is acting funny, up in a down cycle which it has no business to do. Now it has catch up with the cycle and the cycle is down till end of the year.
      I actually wanted more from the bears but bit disappointed. May be we will get some firework in December. Folks are not scared yet and I would not buy in this bounce if it comes now.

    2. Yes, I remember you mentioned aud that it's out of sync with the market. Aussie indeed felt like an outlier in this market, so it was an excellent reason to sell it.

      They are definitely not scared, in fact they keep asking 'when I should buy Apple, now?!'

  3. Nomura had a FX research report out two weeks ago, explaining the logic they see behind possible coming AUD drop. Here is the link, you may find it useful:

    Are you still in the camp of bottoming in mid-Nov., waterfall in Dec. camp? If so, we may see a quick bounce to 1400 following by a cascade to 1250. That would be very dramatic.

    1. So far I have remained in the sideline because short term things do look very oversold. A bounce till 1400-1425 would be a good opportunity to short but I am not sure about 1250. Good long opportunities coming up by end of the year in many sectors.
      Thanks for the link.

    2. Very interesting, thanks.
      Are these free materials btw?!

      "As a result we enter a 3-month 0.96-1.02 put spread, for a cost of 1.05%
      (spot ref 1.0375). We spend $200k in premium for a maximum payoff of

      I'm not there yet in terms of position sizing they use, but definitely it's interesting approach to use options for FX trades. The performance there is excellent as well (if they tell the truth of course).

  4. Hi, BB, do you see if it's too late to get into natural gas now? What time frame do you see $6 could be reached?

    1. The next short term target is around $4.00. So not much upside in this cycle which is up. It actually depends whether your goal is short term or long term. In short term , you have another 5% to play for. In long term ( 9 -12 months) there are lots of upside. Depends on your risk appetite and time frame.