By Alex Salomon
I ended up taking a break from updating this column in the last trading week, partially because I could not come up with any good swing ideas (considering the choppiness we faced), partially because I knew I’d be traveling, and lastly because I firmly believe and repeat often that non-professional investors do not have to be investing at all times!!
And although I am lacking in long ideas for this week, I am going to provide a rapid-fire update of the trading column mixed in with some random market thoughts for the week. Note that you can follow most of my real-time updates and action on Twitter @Alex__Salomon
As always, I am going to review open positions, but feel free to skip directly to the forecast for the week & weeks ahead, which I’m dubbing “Apple, Fruit of Doom Then Bloom?”
But before I do a rapid-fire take on the markets, let’s review the previous positions and how they unfolded:
1) iShares Semiconductor Sector (SOXX) – I got cut out of the position on a break of $52 and went to cash. I will re-visit, later.
2) Apple (AAPL) – my last third was trailing $40 and got stopped at $667. It was a very rewarding trade and I day traded options on Apple, but as of right now, this position is back to cash.
3) Russell 2000 iShares (IWM) – After being on for 6+ weeks, the last tier remaining was stopped at $84 and went to cash.
4) TDC, IPGP, NGVC, FIO: some OK, some bad, all in all, 1.6% returns and … back to cash!!
5) iShares Emerging Markets (EEM) – Now owning a full position at $40.55 (averaged). My risk is going to be that $40.00 break out level (meaning that, at $40.55 average, I am putting my current stop at $40), setting my initial target at $43 (selling half), while trailing the rest with a $3.00 stop.
I believe that EEM can recapture 2011 highs around $48 and more — but the timing, again, could be a few weeks out. In the meatime, $40 is my floor!
*Note that the EEM (via EDC) position was my last and only idea remaining open from this column.
For this week & the weeks ahead, I’d like to share that I went big time bearish on Friday Sept. 28. I had been up and down, and trading some of the chop for the past two weeks but many of the indicators I follow are starting to roll over. So, although I may be too early, I am bearish.
Here are my bullet points:
- I am aware I could be a bit early and we could still have a blow off top, but I expected window-dressing to be the catalyst for it and it did not happen
- I like to make green when everything is green but I never mind making green when screens are red
- Tuning out bearish noise when I am bullish is as difficult as tuning out bullish noise when I am bearish
- October is a seasonally weak month
- Therefore, if performance anxiety did not wake up the bull sleeping in laggards, it is not going to wake up in October
- If chasing did not happen upon the “unlimited” QE and ECB rhetoric, I don’t see it happening before a clearer US Presidential picture shakes up
- Corrections never feel healthy, can never “happen”, are stealthy and brutal and unwelcome and unexpected
- The news from Europe, although gradually better and improving, is too slow for the impatience of the markets: better said, the markets expect faster, cleaner, more efficient decisions. When the markets are disappointed, they fill the void with sell-offs
- The disconnect between the slow decisions of EU politicians and quick expectations of traders coupled with October could yield a sudden vacuum
- Just like there is “no volume in rallies”, it takes very little money to depress stock prices!
- No matter how sick and unhealthy this is, the best way for Germany and the markets to put pressure on Spain (and all) is to have corrections and fear and even panic
Now, onto my “Apple, Fruit of Doom, Then Bloom?” scenario: while I don’t know how the game is played, I think some would argue that manipulating a crash in Apple could be good.
→ My conspiracy theory would go a little bit like this:
→ Crash Apple a bit like May 2012 and end of July 2012 (“it cannot go below its 50-day MA!!” … “Yes, it can!!!”)
→ How do you crash it? Mix in Spain news, October and maybe a re-weighing? (how convenient… in October!!)
→ Help the friends of friends in the HF industry re-load Apple at a cheaper, lower price before the Q4/Q1 combo earnings;
→ Ride Apple monster earnings to finally help a bit with performance and year-end window dressing?
→ Of course, I know markets cannot be manipulated and stocks cannot be crashed to help reload and window dress because we live in a Free Market environment, so I am just making all of this up (yes, I am being very sarcastic!).
With all of these bullet points in mind, I am tentatively mapping a road that could see a slow eroding correction into about October 20-25, maybe to S&P 1380 (or even 1360). What is absolutely murky to me is whether we will experience a grinding theta decline (like the past 2 weeks) or a brutal flush (on an Apple crash)… or a mix of both?
Then the Q4 wave of earnings will roll in, then Spain will have been panicked into making progress, then Apple will beat with $11+ EPS for its Q4, then we will have more clarity into the Election Cycle, then analysts covering Apple will be churning the numbers for Q1 earnings ($20+?), realizing that Apple’s TTM EPS will be $50+, thus making the stock “cheap” at $750 and pushing $800.
On the macro front, China will re-couple and pump and ease and squeeze fake GDP data and the world will feel better… and we will ride into S&P 1525 (or even 1550) on a wave of excitement and anticipation into January 2013 earnings.
To sum it up and going out on a limb:
- Bearish and suspicious until October 20; Apple’s earnings;
- I am likely to play several earnings reports: FIO, TDC, AAPL, GOOG, IBM, CSCO… and several other usual suspects – in a bullish & “beat” stance;
- If we do correct and bounce, I will load up on China / FXI / Chinese exposure into year-end – all based on my EEM and re-coupling theme;
- I will position for S&P 1525 into the year’s end and I will be investing in Financials, CSCO, MSFT, AAPL, GOOG and high beta.
Disclosure: At the time of writing I own EDC, a 3x ETF based on EEM — 3x ETFs are riskier vehicles and investors considering them should carefully read the risk disclosures written by each leveraged ETF underwriter; I own FIO; I am considering long & short trades into all of the stocks and indices mentioned in this column.