Which Way Wednesday – AAPL’s Drag Too Much For Nasdaq to Overcome

After a great recovery off a dive to $505 in mid-November, they bumped up against the 200 dma at $596 and have been harshly rejected – already pulling back $30 (5%) to $566.  There has been no news – certainly no bad news – to cause this, just as there wasn't much news to cause the original drop (which we bought into).  As noted yesterday, AAPL is a big part of our $25,000 Portfolio and we even have an AAPL Money Portfolio and, although we are hedged – we're still expecting them to get back over $600 by Christmas.  

Without AAPL, the Nasdaq is toast, as it's roughly 20% of that index – hence our failure to get back over 3,000 on the Nasdaq but, when a stock has that much control over an index – perhaps the simple answer is that it's just being manipulated by Fund managers in order to manipulate the indices it's over-weight in.  That's why hedge fund managers like Paul Schatz of Heritage Capital can make outrageous calls like AAPL will be a $400-500 stock.  Why?  Well, he's a bit vague on that – it seems to have something to do with the Fiscal Cliff and the broad economy and not much to do with the fact that they make $50 a share and have $170Bn in cash on the books and that $400-500 would be a ridiculously low value.  

What does a guy like Shatz have to gain from pushing AAPL lower?  Well – if the Nasdaq follows AAPL down, then there's a whole index full of stocks that get dragged down with it and offer up attractive buying opportunities – for no other reason than one stock in the index caused a lot of damage.  That allows fund managers to allocate capital to the Nasdaq, knowing that eventually either the index will de-couple from AAPL or that AAPL will recover to a more normal value and bring the entire index with it.  

As you can see from the chart above, AMZN is humming along as is GRPN and GOOG, who are about to cross back over their own 50 dma at $704.  While certainly not in the same end of the tech business, it would be strange to see GOOG doing so well while AAPL is doing so poorly.  That's why we bought back some of our hedges on yesterday's weakness and are playing for the bounce off that $570 line.  Our actual buy point remains $555 but this is around where we should expect a turn as AAPL again gets too cheap to ignore.  

We're not likely to recover WITHOUT AAPL and, as I said in yesterday's post, there's not much likelihood of a catalyst from the data between now and next week (other than a real surprise from the Fed this afternoon) so it's all about patience.  AAPL is more likely to lead the Nasdaq this week as there's all sorts of potential good news out of them (sales numbers, market penetration, competitors faltering) that could make a sub-$570 price seem silly and a 5% recovery in AAPL, back to $595, is a 1% pop in the Nasdaq – back over 3,000 – and that would put all our Must Hold lines back in play while we wait for the Dow to catch up (13,600 is bullish goal).  

As you can see from the chart on the left – as goes AAPL, so goes the nation with over 500,000 US jobs created or supported by AAPL and that's not even counting the entire smart-phone industry they helped create in the first place.  So AAPL better not be going down to $500 (again) as it's going to signal not just AAPL's failure but the failure of the US Economy in Q4 and we can just bend over and kiss our assets goodbye if that happens. 

Meanwhile, it's time to do a little bargain hunting – both with AAPL itself as well as the tech sector it's holding down.  We'll do a Holiday Shopping Survey this weekend but preliminary reports already suggest the malls are humming and, once we get this cliff nonsense behind us – I think the consumers are ready to rock and roll this holiday season.