Apple Investors: The Bottom's Not In - Just Yet

by: Zach Bass October 07, 2008 | about stocks: AAPL / DIA / QQQQ / SPY    

Zach Bass

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Fear is the word often used on the day of capitulation, but that’s not what we experienced on Monday. No, not fear, but panic. That’s right, out and out panic! What’s the difference you might ask? Well with fear, contrarians are looking for those sentiment indicators that the market is nearing a bottom. The last two capitulatory events saw the Volatility Index [VIX] spike to the mid to high 30s, spurred by a market gap-down, then followed by a huge wide spread reversal in the Advance-Decline line. In addition, with that we normally plot a black candle on the VIX and hollow candles and hammers on the indexes.

However, Monday was different. On Monday, we experienced something beyond fear - we had panic. The feeling was the one you would get peering over the edge a tall building and someone nudges you from behind, sending shivers up your spine and your bowels spasm. That nudge was people dropping out of their 401(k) s and world leaders on their Bat phones talking a coordinated global rate cut.

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We’re in uncharted territory with the VIX jumping above 58, a level never seen before. In addition, we set a single day record with 2700 new lows on the NYSE and Nasdaq combined. Other notable events today (Monday, October 6) was that the Dow closed below 10,000 for the first time since 2004. In the early afternoon, we bounced off the gap down and rallied back. However, the Advance-Decline line didn’t to that capitulatory reversal, where buyers start coming out of the woodwork. We did rally, but it was on extreme oversold conditions and the rumor that the Fed was thinking that coordinated global rate cut.

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Therefore, it appears that we have to give it a go again. Another gap-down ought to do it. However, when will it come, today, this week? Maybe next week? Nobody knows for sure. One thing that is for sure is Bank of America (BAC) reported huge losses after the market closed, with a 68% drop in net revenues compared to last year’s third quarter, and sliced its dividend by 50%. The stock was hammered down over 10% in after hours trading. If there was a bottom on Monday, you would have seen Bank of America weather that after hour’s barrage. That can’t bode well for the open, but we shall see.

AAPL was a bright spot on Monday, although it was in the dumper in the early going. However, when the market rallied, investors piled into AAPL and sent it into positive territory. If you’re a long-term investor, you have to like the prospects of buying AAPL here with its earnings and forward P/E on par with each other. The thing is, can it rise above the economic conditions?

Okay, let’s get back to when the bottom is plotted. We need to take note of the gap and see where the potential resistance levels may lay when the rally starts. Typically, those levels are at the top and bottom of the gap. The S&P bottom of the gap is at about 1040 and the top is at 1099. On the Naz, the top is 1947 and the bottom is at 1905. If we go lower today and the markets fall below these level, you want to make sure that rallies take these levels out with strength before committing to any longs.

Disclosure: All cash.

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This article has 13 comments:

  •  
    Oct 07 09:13 AM
    I suppose there will always be folks who are more comfortable trading on charts and points of "resistance" - which no doubt exists. But your points of resistance mean nothing when key events come along, like the introduction of Boot Camp - to send a stock like aapl soaring...

    I'm far more comfortable investing in a company with a plan, leadership, proven products, future potential, partners, and solid fundamentals - like the current P/E. And a big pile of cash. Your charts seem to contradict the notion that past performance is no indication of future results.

    Also, I think you're throwing aapl into your stories just for the click-count of the fan base. It's pretty obvious in this story.
    Reply | Link to Comment
  •  
    Oct 07 10:23 AM
    You must be really bored to write this crap. I hope you are not getting paid for writing this crap. Like to fire the guy / or gal that hired you.
    Take a sleeping pill and sleep it of you idiot.
    Reply | Link to Comment
  •  
    Oct 07 10:32 AM
    THIs guy shorts Apple lol
    Reply | Link to Comment
  •  
    Oct 07 11:01 AM
    Pretty harsh words NEEL, for someone that is simply stating facts mixed with a small dose of subjective thinking. When Zach refers to panic, It would seem he is referring to you. Keep your emotions in check, or find another "hobby".
    Reply | Link to Comment
  •  
    Oct 07 11:22 AM
    Toni, can you tell me what "trailing PE" means?
    Reply | Link to Comment
  •  
    Oct 07 12:04 PM
    I gotta agree with Murphy. Financial Bloggers are definitely throwing Apple into their headlines without abandon - usually in a negative light and then the article is mostly about something else. Lame, Lame, Lame.

    Fishing for the "bottom" is foolish because the bottom line is that Apple is the most solid tech company on the street. If any company can survive this economic cycle and cash in on the following recovery, it is Apple.

    Start accumulating positions now for the long term and you won't be disappointed.
    Reply | Link to Comment
  •  
    Oct 07 01:31 PM
    The reason I threw AAPL in here is that this is a reprint of a post from my blog www.zacharybass.com where I post about investing in Apple, with a strong focus on market and sector analysis. Sometimes my blogs are focused completely on Apple, sometimes focused completely on the market. And always focused on helping the Apple investor out of the Wilderness ;-)
    Reply | Link to Comment
  •  
    Oct 07 03:53 PM
    who knows when is the bottom to this mess.
    Reply | Link to Comment
  •  
    Oct 07 05:01 PM
    Counting what Toni? Pennies from your piggy bank? And quit fantasizing about me, your boyfriend won't approve.
    Reply | Link to Comment
  •  
    Oct 07 06:10 PM
    Toni wrote: "Trailing PE is based on future guessed predictions."
    Reply | Link to Comment
  •  
    Oct 07 06:11 PM
    Toni wrote: "Trailing PE is based on future guessed predictions."
    Reply | Link to Comment
  •  
    Oct 08 03:47 AM
    A little secret to all of you ga ga over Apple, Google and RIMM --- the next bull market will be lead by entirely different companies. This is something espoused by the great ones from O'Neill to Granville.... So to be buying this stock at these levels is like committing financial suicide. It will be a slow, painful death...Target on AAPL ---$35-50
    Reply | Link to Comment
  •  
    Oct 08 11:51 AM
    Morons like Brewer try to trash anyone who are critical of Apple. Idiots like Brewer claim that "Keep in mind, the rotary dial phone is also a touch based device". Are these guys living in fantasy world? Look at where Apple stock is. In Jan 2008, I predicted the share price to drop to around $85-90, when there was a big hype about iPhones crossing 10 M mark soon. Yes, Apple indeed sold nearly 10 M as analyzed by Turley Muller of seekingalpha. Steve Jobs boldly predicted that Apple would sell 10 M iPhones in one year and he thought that consumers would queue up to buy these phones. In reality this did not happen, until the price was slashed after 45 days and a cheaper 3G version was introduced. To continue this momentum, Apple has to slash the prices to appease frugal consumers in other countries. Hey Brewer, I didn't know that rotary phone is also a touch based device - what a great discovery ??? Try to sell few Apple shares to Wall St. with your discovery. You can also stand in front of NYC 5th Avenue store to demonstrate that rotary phones are also touch based device. Toni is a bigger MORON than Brewer. These two misguided fools should be chased out of all forums.
    Reply | Link to Comment
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