More Blah (except for Apple wow)


Another unexciting day in the markets – though what I am noticing is that many stocks that were down going into the end of 2011 have strongly reverted to the mean with many deep value stocks moving up 10-40%. Today’s edition was EMC, which moved up over 7% today right to the breakout point of the double bottom base and rested there. EMC was helped by good numbers from VMware – which is over 80% owned by EMC.

A Word About Apple

iPads everywhere

The big news was Apple reporting their results after hours. It seems that either everyone now owns an iPhone and iPad or some very devoted fans own 2-3 of each because their numbers were huge. Cross selling is likely running rampant as many iPhone owners are probably buying iPads (me included).  Over 37 million iPhones and over 15 million iPads were sold last QUARTER. What is amazing to me is that the company that used to be called “Apple Computer” (it’s just Apple now) gets less than 15% of revenues from desktop and laptop computers. Over 70% of revenues are from iPad and iPhone – incredible. Their long term plan is likely to increase the presence and reach of their App Store and iTunes portfolios, build the recurring revenue model from selling iPad applications (“apps”), music, books etc and leave it to their devoted fans to upgrade every 2-3 years.

Of course this is what Amazon is trying to do (doing it well too) so the battlefield is set. Control the device, and get the revenue from selling things through that device. Speaking of controlling the device, I read a great story yesterday discussing how Amazon’s Kindle Fire tablet, which is selling quite well for a tablet that’s  not an iPad, doesn’t even use the Google standard apps/software on its Google Android operating system, cutting Google out of the revenue stream it hopes to get by controlling Android (Google paid searches through the devices, etc). So it’s Apple looking good currently, Amazon rising fast and looking strong in other areas, and Google, which has the money to compete trying to make sure it finagles its search elements aka revenue stream, into the picture. Google also has to worry about Facebook, which is trying to increase revenue from search, games, etc and is rumored to have a phone in the works – sorry but I’ll call that the loser/teen phone because if the phone’s focus is Facebook, no offense, you must have no life.

The other wild card is Microsoft, which also has the money, is a bit late to the game with certain things but trying hard. they still have the trust of business and if they could parlay that into increased business and consumer revenue, we might have a 4-way game. How they execute is the test. They have an excellent gaming system in xBox which could help them capture the teen market and maybe keep them as they get older? But that involves execution and I have no idea what they will do with their assets.

Rest of Today’s “Action”

Breakouts are happening but few power higher immediately and make you feel comfortable about hanging in there (perhaps give these trades a bit more leeway to revert somewhat). Trades off bottoms seem to have worked well so far this year as some stocks return to mean (R2M) but many hit the brakes when they get to their breakout point. It’s taking a lot of buying to get past the value sellers selling into the breakout buys. If this market continues to move up, maybe buyers will shift from R2M type investments to growth momentum. At this point, quite a few stocks have powered higher but many are also frustrating.

The dividend paying bond replacements have stalled mostly. Unless good news comes individually, and unless the market gets defensive, I see them continuing to float aimlessly – unless bad numbers come out such as Verizon’s (stock down 1.59%) – as investors focus on more exciting stories. The MLP index was flat, as was JNJ. Altria was down a bit. AT&T dropped 1%. This is just not an exciting group.

Large Cap tech was mixed with Intel still rising (It’s got big cap Mo), Cisco flat, Microsoft down a bit, Google down a bit too, though many of these are up a bit in after hours as somehow investors must be equating good Apple quarter with good tech quarter and I just wouldn’t go that far. Apple good quarter = good quarter for Apple and Apple suppliers/partners like Nuance (think Siri). IBM powered up too over 1% as 4% growth and sweet whispers from management equaled “let’s buy.”

Gold and silver took a little break along with gold mining stocks. One sign of a weak market – when a buyout makes the acquirer swoon. the acquirer often adjusts down but in the case of Pan Am Silver, they got bombed. If this were a metals bull market, Pan Am might have risen on the news (that’s a good check for bull markets – if acquiring companies rise on acquisitions no matter if they’re accretive or dilutive). Gold’s been inching back toward $1,700/oz though we’ll likely need some event to retrigger a stampede in metals.

Tomorrow we’ll have to see how the markets react AFTER 10:30 to the Apple news. Expectedly, Asian markets are up this evening, likely due to some jubilation over Apple. Apple is also a big part of the Nasdaq 100 Index so the QQQ’s will likely see a pop. It remains to be seen if it continues after 10:30 and 11:30 and 2:30 because I know it will be exciting at 9:30AM, but I don’t know how long it will last – though with markets moving up, it may be the kick in the pants the market needed to pop up another 2-3% like on January 2.

As usual, keep your risk management plan in place. Though if you’re a breakout trader, consider giving your positions a little leeway to return to breakout price or slightly below to see if buyers push it back up again. Value buyers, you still need to have risk management in place. 30 Year treasury owners, you might get a scare in the next week or two if this continues. TLT has already broken short term downside resistance.

At the time of this writing, I or my clients own the following investments mentioned in this column: Gold, Silver, MO, GDX, NUAN calls, IBM puts, PAAS, AMLP

Note: this article is meant to be some helpful thoughts to share and not investment advice specific to you. Please consult your own advisor regarding investment and financial decisions. See our disclosures page