JUST LETTING YOU KNOW
In today’s market, nothing really stood out. There were some little pullbacks in Housing. Some pullbacks in Financials. There was strength today in the Metals and Mining despite the fact that the Euro was very weak. Oils were mixed but I do see a bunch of green there.
Just not the most important day in the market. Volume was ridiculously light.
Just remember we have JP Morgan (JPM) and Wells Fargo (WFC) reporting on Friday. Alcoa (AA) — whoopee doo — on Wednesday. Everybody keeps saying Alcoa is important – not really. Next week and for the next three weeks, thousands and thousands of companies will be reporting. That’s where you have to be on your game. We’ll be watching the reaction to the news, because it’s not the news, rather it’s how things react to the news.
There was an article today in the Wall Street Journal about earnings. The prediction is that the estimates are not going to be very good. But that could turn out to be a good thing, when expectations are on the low side. Any “beat” is a good thing and when you have the Fed printing $40 billion a month on top of Operation Twist and on top of zero percent interest rates – you get a market that seems to have a floor underneath it. And that’s really the story of the day.
The most important thing is that major averages, except for the transports remain above both and short-term and longer-term moving averages. Most important is the 50-day/10-week moving averages and as long as the major indices stay above that – good. Simple as that.
Just by the study of markets going back forever, the main constant of a bullish move in anything is that they stay above this ascending moving average. A break of this moving average to downside on heavy volume changes that playing field. In bullish moves typically, that moving average will contain all pullbacks and most often, when you look at the 50-day moving average stocks will pull back to it almost to the penny and bounce and get bought right off the continuing bullish move. And that’s why I mention it so often. And if you’re not sure what I’m talking about, go do a study of the biggest winning stocks. Just go back since 2000. You will see this one constant. And the other constant is the breaks occur when the stocks stop going on and start trading wide and loose up at the highs – and then break on volume and then all rallies after that break are into what now happens a flattened and then a declining 50-day moving average. And you will see in bearish phases how, so often to the penny, stocks rally into them and then fail and fade, heading deeper into the abyss.
So it’s very important you do some homework on that.
I went through 2000 of them this weekend. And this is not predicting. This is in the study of what works and what doesn’t work. It is these studies that give us a leg-up. It is the study of fear and greed in the market and where the big money crowd stands up to defend great stocks, as well as the market.
I hope you’re doing some work on it.
It’s a very important to recognize a few things. Apple, over the past few years has gone through multi-month ranges before moving out range again. I can tell you that it bottomed in 2009 after sitting between 80 and 100. It went up to 208 and that was in October 2009. It did not break out until March of 2010. Only rallied for about a month to 272 and that was in April of 2010. Did not break out for 6 months. Moved out again and then from October 2010, for about three months, sat.
It did not break out in earnest again until July 2011. Rallied up to almost 400 and then it sat around for another six months. And then it gapped on earnings, rallied and now basically it is where it was in April of this year. The high was 635 in April and today it closed at 638.
Got a bunch of phone calls and emails today, just about all asking the same thing. Most of the questions were, “Is there anything wrong?”
Well, the stock price is under distribution here. That’s what’s wrong. Let me put it in reporter’s terms.
- It has broken below the 10-week/50-day moving average with volume. This is the big money crowd getting rid of their stock.
- Is there anything wrong with the company? Well, they announced the iPhone 5 and came out with it. And I must tell you, from my experience, there are shortages. Now for me that’s not bad news because usually you fill shortages. I went this week and they were out of the black ones in a lot of areas in Florida. There other issue is the mapping software. The other issues is the Foxconn thing in China, where they went on strike due to work conditions. But for me that’s all noise.
The bottom line for me is that not much good can happen to a stock, if it’s trading below the 10-week/50-day moving average. Just keep in mind that on several occasions, Apple went below this area and sat around for weeks and sometimes months, it put in a new trading range and then turned back up again. I have no clue if that’s the case again.
All I can tell you is where it is, where it stands, it’s under distribution, and it’s affecting the Nasdaq and Nasdaq-100 on the downside a little bit here.
Earnings will dictate a lot of policy here. Last quarter’s earnings, they missed by a zillion miles. But the bet after that was, “Here comes iPhone 5” and I think stock rallied only on the iPhone 5 and now the question is, how big is going to be?
The stock cannot go higher until it gets back above the 10-week/50-day moving average, in earnest.
And that’s the best way I can explain it to you.
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Gary Kaltbaum owns Kaltbaum Capital Management, LLC (“KCM”), an investment adviser registered with the U.S. Securities and Exchange Commission. The opinions expressed herein are those of Mr. Kaltbaum and may not reflect those of KCM. The information offered in this publication is general information that does not take into account the individual circumstances, financial situation or individual needs of an investor. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.