Tower Private Advisors
- Market takes a breather
- Apple stock
- Mixed economics
Capital Markets Recap
Markets are beginning to reflect some slowdown concerns, what with the second of two negative weeks for the globe’s source of equity strength, the U.S., as measured by the S&P 500, pictured below on a weekly basis. A nice 8% correct would take stocks down to the 50-week moving average, and that looks like a good spot to do some buying, so long as recession risks haven’t increased or other indicators intervened.
There are doubtless a lot of folks who still hold Apple stock, and a lot doubtless have minus signs on statements, but I wouldn’t be selling the stock right now. The confluence of Italian mathematics, Carl Icahn, and upcoming product launches should conspire to make Apple a decent holding–please don’t construe this as a buy recommendation; what follows is for education purposes only–over the next several months. Consider the following chart.
The Italian math part is represented by a Fibonacci retracement overlaid on Apple’s big decline from $700 to south of $400. Fibonacci is, at it’s essence, a ratio that occurs repeatedly in nature–in the coneflower, brocolli florets, the nautilus shell–and in art–the Greek Parthenon’s dimensions, aspect ratios of Leonardo Divinci’s paintings, the Egyptian pyramids–and in your body. It’s a ratio that approximates 3:5 and variations of that ratio are indicated by the dashed white arrows above. More often than chance would suggest, those ratios serve as important resting points for stock prices. In short, Apple’s at one of the important levels and is likely to take a pause.
Carl Icahn thinks the stock should rise to north of $600 with the help of a dividend funded by the company’s cash hoard. He has taken a $1 billion stake in the Company.
Finally, Apple is getting ready to make a couple of product announcements. Speculation includes a Retina iPad Mini, a fingerprint-scanning iOS device, a cheaper, plastic-backed iPhone, a better camera, etc. Regardless, the stock is likely to get a lift from this third leg of the stool.
We’re starting to see some things to worry about. Events in Egypt are sad enough. This week, though, Cisco Systems and Walmart lowered their forecasts–Cisco threw in a few thousand layoffs–on economic concerns. Although Bloomberg and others tried to pin the blame for Thursday’s market swoon on fears that the Federal Reserve will begin tapering on the strength of reports like initial jobless claims (below), there has to be a worry that the third quarter GDP may not be that great–along with earnings, to which Walmart and Cisco alluded.
The economic news this week was a mixed bag. Initial Jobless Claims made a new post-recession low this week, falling to 320,000 (335,000 was expected); the four-week moving average also hit a new record. On the other hand, Industrial Production was flat in July versus expectations of a 0.3% increase. The NAHB Housing Market index reached its highest level since late-2005. Housing Starts and Building Permits showed seemingly strong month-over-month growth–5.9% and 2.7%–but both came up short of economists’ guesstimations. On the other side of the ledger, University of Michigan Consumer Confidence fell from 85.1 to 80.0, below expectations of 85.2. According to the survey, the decline was the result of higher interest rates. Also, regional Fed reports from Philadelphia and New York showed second-derivative declines; i.e. both showed regional economies growing, but at slower paces.
Just a few releases are lined up for next week. Undoubtedly, the most important will be the minutes from the Federal Reserve’s late-July meeting.
Graig P. Stettner, CFA, CMT
Chief Investment Officer
Tower Private Advisors