Is Apple now a solid buy?
With Apple’s recent profit warning, every pundit has suddenly jumped on the ‘Apple is a busted flush’ bandwagon. The headlines tell it all – here is one: “Apple just sparked a rude awakening on Wall Street and it could get worse“. And another: “After a shock profit warning, it’s time for middle-aged Apple to put its feet up“.
This is the usual MSM click-bait tripe trotted out by financial journalists who adhere to the News makes the Markets nonsense – and are always late to the party! A ‘shock’ profit warning sends the stock reeking – and all of a sudden they have a big story with lots of important-sounding words. The sad thing is that well over 99% of MSM readers lap it up to ‘explain’ the price move. But of course, it is way too late to benefit – unless you take a contrarian view, of course.
Maybe they hadn’t noticed but the share price made its high at $235 on 3 October and was trading well down at stunning 35% loss at the $155 area just before the ‘shock’ results. That is a staggering loss of $80 – and that was before the news broke. So was the news really a ‘shock’? It wasn’t for me. As I never tire of explaining, the market anticipates the news, not the reverse.
In fact, for my Pro Shares service, we were already short from $225 as my analysis told me odds favoured a major trend change was occurring right before my eyes in October.
Interestingly, the image is of the spanking new palatial Apple HQ in Cupertino, which was completed just as the share price was topping out. Long time readers will recognise that as yet another stunning example of the ‘Skyscraper Effect’ which notes that the ‘world’s tallest skyscrapers’ tend to be in construction near the end of major bull markets.
When a company’s supreme over-confidence in the future impels it to build huge vanity projects, you can be sure that a reversal in fortunes is not too far away. Incidentally, the HS2 high speed rail project in the UK – whose main benefit of the £100 Billion cost seems to be a reduction in the travel time from London to Birmingham of a few minutes – is a case in point. That alone signals an approaching downturn in the UK (and global) economy.
So now the MSM is very bearish on Apple and in true contrary fashion, I ask is Apple poised for a decent counter-trend bounce? And shall I advise Pro Shares members to take some major profits off the table (and perhaps go long?)? Here is the daily chart showing my excellent tramlines
This is the rally from the 2016 lows which I label as the final fifth wave – and it has traveled within the channel between my lovely tramline pair. Note the ‘overshoot’/buying climax as it poked above the upper tramline last August and after putting in the $235 top on 3 October, fell hard back into the channel, which was my signal that the trend had indeed changed to down.
From there, it has been straight down as the market got wind of the rapidly changing company fortunes. But with the ‘shock’ profit warning out of the way, can it rise from the ashes at the Fibonacci 62% retrace on a momentum divergence? I believe it can and if last week’ low is wave 1 down, wave 2 up has started (or will do so soon).
And if that occurs, can you imagine the surprise of those who follow the news and see the share price rise?
China lands on the dark side of the moon
A milestone has been reached for China. They have successfully landed a rover on the dark side of the moon. Let’s consider the significance of this for a moment.
First, it pales in comparison with the US’s achievement fifty years ago of landing men on the bright side of the moon (and returning them) in multiple missions. That monster effort was made despite the relatively primitive technology of the time. And I am sure China threw a big chunk of its (rapidly slowing) GDP at its unmanned effort.
As it happened in the late 1960s, that was the zenith of the manned space race – and not coincidentally at the same time as the major top in the S&P (in Dec 1968). From that point, it dropped 40% to the early 1970s low. Hmm.
So I ask, with Chinese stocks now in a bear trend, will last week’s success also mark the recent high as a major top?
Second, the Chinese rover landed on the dark side of the moon – a region previously hidden from our view on earth and shrouded in mystery. It is a region previously unexplored. So will that symbolism apply to the very low levels stocks will reach? Here is one popular China index the A50 weekly
From the wave 5 high in January last year, it has been downhill all the way. I expect the wave 4 low to be broken and then we will be in uncharted territory since 2015.
With the market and economic growth in decline, it is doubtful if China will venture beyond the moon and almost certainly not start a manned programme, despite their stated intentions: “When it comes to next steps, China is planning to launch its first Mars rover by the end of 2020, and is also planning to launch its own space station by 2022. Its ultimate aim is to build a lunar orbital platform and – eventually – to send astronauts to Mars.”
The last part I believe is in the same over-ambitious scale as flying cards and autonomous vehicles born during the last stages of the super-optimistic Great Asset Mania.
I have some history here. At NASA in the late 1960s, I was part of the Mars Exploration Team where we designed the manned Mars missions to follow the great success of the Apollo lunar landings. Because of the enormous cost and the great unknowns, It was clear that it would never get off the ground (I added then: … !in my lifetime) and the project was duly shelved. The omens are not good for the Chinese Mars plans.
How long will low interest rates persist?
Everyone follows the Fed’s moves, don’t they? The universal belief is that they control interest rates and hence the economy. Almost every pundit I am aware of subscribes to this paradigm. They have a magic wand and the markets follow just like Mickey Mouse and the brooms in Disney’s Sorcerer’s Apprentice (film Fantasia).
But in reality, the brooms have a life of their own and natural forces take over. It’s the same in the markets. In fact, it is demonstrable that the Fed follows the market and here is a chart published a few years ago that firmly proves it
chart courtesy www.elliottwave.com
A close inspection shows that consistently the Fed has followed the moves made by the market. In fact, you can make a pretty accurate prediction of the Fed’s upcoming announcements by glancing at the 3-mo T-Bill chart. You do not need detailed economic arguments – just look at a simple chart!
So what determines interest rates? It’s Econ 101 again. It’s the supply/demand balance. That simple concept explains the NIRP and ZIRP era. The Fed printed so much QE money supply in a torrent but demand could not keep up. So market rates fell – and the Fed had to follow.
One of my favourite markets to trade is the 30-yr T-Bond – the biggest in the world. I managed to catch the low in yields in July 2016 and since then, rates have been working higher. In the summer of 2016, most were convinced we would see negative US yields and bullish sentiment towards Treasuries reached extremes. Of course, that was the perfect time for a major reversal.
I believe we have a similar position today. Yields have fallen from 3.45% in October (as the Dow/S&P were making their ATHs) to last week’s 2.85% as investors switched out of shares and into bonds in a large risk-off surge. But that will come to haunt them. The recent surge in bond prices was partly inspired by the collapse in crude oil, which normally signals a low inflation scenario.
But if crude recovers, as I suspect, bonds will be sold off and we will face the prospect of the ultimate deflation scenario of falling stock and bond markets. I fully expect that to unfold this year.
In terms of the Elliott wave picture, odds are high we are now starting a large third wave (long and strong) down in bond prices, having last week completed a wave 2. Here is the 2-hr chart
Again I have lovely tramlines and a late overshoot (very similar to the Apple chart) on a small momentum divergence. So on Thursday, odds were growing we were near the wave 2 top and on Friday, I advised VIP Traders Club members to position short.
Naturally, I recognised I was bucking the well-developed bull trend (something the ‘experts’ tell you is a no-no). But I have made a specialty in locating trend changes early (which is where the maximum profit resides). In fact, that is the low risk strategy (contrary to popular opinion) since I can set a very close stop loss just above the high.
You read everywhere that no-one can pick tops and bottoms. This received wisdom comes from extremely lazy pundits who perpetuate the myth that markets are at the mercy of random forces. Nothing is further from the truth.
It used to be said that no-one can beat the odds is Las Vegas and over the long run, everyone must lose to the casino’s percentage edge. That’s why they can build and operate vast palaces on the punters’ losses.
But that myth was well and truly busted by several individuals including Ed Thorp who devised a system for taking away vast sums at blackjack and roulette and then went on to run money in Wall Street. I can heartily recommend his book A Man for all Markets.
Thorp was no gambler, unlike the vast majority who frequent the casinos. He had a proven system and applied it with discipline. And that’s what I do.
Stocks surge (for now)
We are in a bear market that started on 3 October. Since then, I have warned that we should expect major counter-trend rallies, and last week’s certainly qualifies as that with Friday’s 800 pip Dow surge. So can I put my finger on how much further it will likely go?
This is the EW picture and we are wave c of 2 up. If there is any follow-through next week, I have a maximum upside objective of the 23,750 area. But the late Friday push has done enough to consider the c wave complete and that would be confirmed if Monday kicks off in deep negative territory.
But whenever the current wave 2 terminates, that would start a major third wave down and I want to aboard that one as it could be the strongest and longest collapse so far.
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