All Eyes On Apple

The market was lower in early trading but has since bounced back into positive territory.  The Nasdaq lagged yesterday mostly due to the weak performance in AAPL shares.  AAPL has captivated investors interest lately, as many wonder if the stock is "done"?

I think that AAPL is just going through a normal correction after a huge run.  No one points out the fact that AAPL was up roughly 75% for the year in September, which is a huge move.  It has also become heavily owned by hedge funds, so the selling and angst over this pullback is not all that surprising.  All great stocks go through corrections, and I don't think AAPL should be sold yet.  Today the stock bottomed near its November lows and has so far bounced strongly from those levels.  It also looks like it is taking the market higher along with it.

Asian markets were mixed overnight.  Japan closed higher at a 7-month high.  And a Chinese state economist suggested that the economy is stabilizing but he doesn't see a V-shaped recovery.

In Europe, S&P cut Greece's debt rating to 'Select Default'.  The ECB and BoE held rates steady.  ECB Pres Draghi said they have lowered their forecast for growth as downside risks remain.  Q3 GDP for the Eurozone was in-line at a -0.1% contraction.

In corporate news, Safeway (SWY) is the latest company to approve an acceleration of its dividend to avoid the rise in dividend tax rates expected next year.  The stock has bounced +6% on the news.  I think AAPL should do a $20 special dividend.

The dollar is higher and having a mixed effect on commodities.  Oil prices are lower near the $86 level, but gold prices are bouncing back to the $1700 level.  Copper and silver prices are higher as well.

The 10-year yield remains weak at 1.57%.  And the VIX was higher in early trade but has since faded back to the 16.45 level, flat on the day so far.

Trading comment: All eyes remain on AAPL, which seems to be having an outsized effect on trader sentiment.  AAPL is rallying today, and if it can continue to rally it should help lift the market.  Yesterday the market had staged a strong upside reversal, but some very late selling took some steam out of the strong technical action.  Overall it was still a solid bounce from the earlier lows and if the market can hang on to these early gains I think it puts the SPX in a stronger position to make a successful attempt at rallying back above its 50-day moving average.  That would likely embolden the bulls to do a little more buying.  That said, I do find this action in the market somewhat surprising given I have little confidence in any grand resolution before year-end regarding the fiscal cliff.  But I don't want to completely ignore the price action.

KAM Advisors has long positions in AAPL