Gold and Apple both Under Pressure

By: Michael Vodicka

“There’s tons of pessimism out there right now. That’s a great time to start a fresh rally.”

 

Stock spent most of the week drifting lower, posting their first weekly loss in a month as legislators struggle to reach a deal on the fiscal cliff. The S&P 500 fell 1.2% and the Nasdaq dropped 2%, led by an outsized 6.66% decline for Apple (AAPL).

The Fiscal Cliff stole the headlines this week, but the bigger story that got slightly buried was the Fed’s announcement it is doubling the size of its bond purchases set to begin in January under “QE3,” jumping from $45 billion to $80 billion. That has some people calling it “QE4.” But call it whatever you want, because the bottom line is the same. The Fed will be going all out until it gets unemployment down to “acceptable” levels. That’s big news for the market and stocks.

That’s a lot of extra liquidity to counter against the fiscal cliff. But the fiscal cliff will be resolved, and they’re will be more tax increases to help “revenue,” and the market will view that extra spending as good for the economy. These things are all bullish for stocks.

There’s tons of pessimism out there right now. That’s a great time to start a fresh rally. Stocks rose steadily in December last year, and then took off in January and didn’t let down until May. That was a big six-month run. The European Union just inked a deal for further fiscal integration. That is a big step Europe needs to take to keep its monetary union together. Further progress in that direction could take the edge off Europe, and that would be really good for stocks as well.

And the central banks as always are ready to go. There is a devaluation marathon going on between Japan, the United States and the United Kingdom. Throw Europe in there too. The weaker the currency the better because it stimulates exports and consumption. But it also makes it harder for consumers to pay off debt, which shows up as inflation on the Street.

Bigger picture, there is just no reason why the centrally controlled global economy would be allowed to go off the rails. Big Brother across the world is watching very closely. It does not help any politician or business person to see the global economy slow down and fall into a deflationary tail spin. So expect all guns to be blazing. Monetary and fiscal stimulation to the max.

And that’s good for everything; stocks, gold, commodities. It’s pure liquidity hitting the Street driving asset prices higher. There were huge inflows into large caps in the last year. If the market regains its appetite for risk, small caps, mid caps, energy stocks and gold are going to be moving.

Shorter term, the S&P 500, per usual, is hanging tough in the face of some real uncertainty. But that’s how this market works. It’s seen a lot of big risk events in the last few years and has become calloused to bad news. And it knows quite well the Fed has its back, so stocks don’t ever get too worried that everything’s going to fall apart.

Year to date, the S&P 500 is up 11.5%. The index has seen a pretty bullish bounce in the last 2 weeks after falling sharply in November. Stocks may be a bit over extended in the short run, but the long=term trend higher is still in tact.

Here is one of the most interesting charts I’ve seen in a while. It’s a 7-year chart of the S&P 500. The index has been testing this recent high multiple times in the last few years. That has the S&P500 in a classic wedge pattern, commonly seen before a breakout. Could be interesting to see what happens to stocks in this key area as the central banks continues to stimulate.

 

 

 

 

 

 

Updates:

Apple (AAPL) took a beating this week, falling 6.66% to close just above $500. There is a lot of bad news getting priced into this stock right now. Worries about margin compression and weaker market share has taken apple from $705 to $505. Apple is definitely not the growth stock it once was. But it still has great products and strong earnings and is a dominant player in many areas, so it’s still one of my top picks in technology. The 4th quarter is usually their best of the year, so buying now on this big dip ahead of the holidays could be an interesting short-term and long-term play.

Gold was showing a rare blast of weakness, pushing Double Gold (DGP) to a 2.6% loss on the week. Gold is hanging onto a narrow gain for the year, up just 3.3%. Gold has been up 12 years in a row, so it’s amazing annual win streak is on the line. If that happens it could foreshadow more weakness for gold. In spite of the incredible wave of monetary stimulation coming out of the central banks.

An aging domestic population needs lots of drugs. That’s the trend driving generic and prescription drugs wholesaler AmerisourceBergen Corp. (ABC), adding 1.1% on the week for a new 52-week high.

That’s all for this week, but until next time, here is “doomsday” economist Nouriel Roubini saying the US will go off the fiscal cliff. Enjoy!

US Will Go Over Fiscal Cliff

And here’s my latest commercial.

 

Your Investment Partner,

Mike

Michael Vodicka is the president and founder of the Vodicka Group, Inc., a Registered Investment  Advisor  (RIA). He specialized in trading fixed-income derivatives at the Chicago Board of  Trade before  spending five years managing equity portfolios for a private investment research company.

Michael graduated from the University of Kansas with a degree in business communications and is registered with the State of Illinois and the SEC (Securities and Exchange Commission) as a Licensed Investment Advisor (Series 65).

ABOUT THE AUTHOR

Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.