WASHINGTON, October 27, 2015 – Tuesday morning’s futures indicated we’d have a lower opening trade, and at the bell, the markets quickly obliged. Trading has been dull to limp and the averages have slowly but inexorably sunk deeper and deeper into the Slough of Despond. It’s been like our favorite theatrical metaphor, “Waiting for Godot, “but this time in slo-mo, something Sam Beckett might have appreciated.
As was true Monday, Tuesday’s trading action—at least as of 2 p.m. EDT—is characterized primarily by slow and gloomy selling, as traders are unwilling to make new commitments to stocks until they get Apple’s numbers, to be delivered right after today’s closing bell.
Worse, stocks will likely behave this way tomorrow as well until that second big shoe—the latest word on interest rates (or not) from the Federal Reserve—drops at 2 p.m. Wednesday afternoon.
Of course, the super-rich dudes will have that Fed info well in advance of peons like you and the Maven, illegal though it may be. Therefore, as always, if we watch the trading, starting somewhere around 1:30-1:45 p.m., we can get an early clue as to what we’re about to read about at 2 p.m.
But back to Apple (symbol: AAPL). As we noted in yesterday’s column, bears and shorts have been beating this gigantic and brilliantly profitable stock upside the head for months now, absolutely (or so they say) convinced that the company is ready to go the way of every other stock that’s entered the rarified precincts of the Dow Jones Industrial Average (DJIA). Indeed, sooner or later that’s likely to come, although long-term we’d bet on later.
Along with this bad professional attitude, it’s been clear for some time now that AAPL has been “over-held” by many institutions and wealthy individuals, so some of the selling that’s plagued the stock throughout much of 2015 has been based on a desire to raise cash in a bad-to-mediocre market and diversify to other sectors. That’s despite the fact that most of the other sectors have been decidedly more mediocre than Apple over most of 2015.
The again, as we’ve certainly learned this year, stock trading and investing today is probably about as irrational as we’ve ever seen it. Traditional methods of fundamental and technical analysis have lost their predictive powers in an age where the only major, overriding influence is the Federal Reserve’s willingness or unwillingness to dump helicopters-full of greenbacks on companies and individuals who already hold most of the existing supply.
Only if and when we get back to a normal interest rate climate will the “old ways” of evaluating stocks and bonds become relevant once again. Problem is, with the world situation persisting in its never-ending badness, a “normal” interest rate climate may never return during the lifetimes of many who are reading this column.
Which again gets us back to Apple. Traders (and probably HFTs) have been smacking AAPL again today, but as of 2 p.m., the stock is only off twenty cents. Which still leaves the burning question: What kind of numbers will Apple report after today’s close?
We have the answer. We think. While the company has occasionally missed its numbers in the past, it mostly beats (intentionally) its own estimates because management knows that’s what Wall Street wants. So the Maven will predict another Apple earnings beat today.
That said, the tradition in Apple stock trading is to bid the company’s stock price up a week or two before its quarterly numbers are announced—which actually happened last week—then dump shares en masse on the actual day those numbers are reported.
This selling panic may persist for hours, days, or even a couple of weeks. But when the day-traders, bears, shorts and HFTs tire of the game, it’s usually time to get back in and take the stock for another ride. Rinse. Repeat.
As with all relatively predictable games, however, in anticipation of this negative action, traders who imagine themselves to be clever and innovative have lately been tending to get the selling underway earlier and earlier, which is what we may have seen in September. So who knows? If we get an earnings “beat” from Apple tonight, the mass dumping of the stock may already mostly be at an end.
In other words, we should get an earnings beat tonight which, in normal times, would lead to an AAPL selloff, which, in turn would lead to another bargain basement buying opportunity. We’ll probably be able to offer a better guess tonight, or maybe after the first hour’s trading on Wednesday. That’s the best you can do in a market as nutty as the one we have today.
Today’s trading tip
As we wait for Godot—i.e., Apple and the Fed—we’ve been picking up some shares of Eli Lilly (LLY), a pharma stock that was stupidly beaten down a couple of weeks ago to a fire-sale price because of weak results for one minor but heretofore promising drug in this massive company’s portfolio.
The last two or three days have finally seen a big pickup in LLY buying, although at this point, we’d guess that most of the easy money has already been made in reaction to that earlier and mindless bout of selling in the stock. LLY has a nice dividend, a good track record and a good research pipeline, even though it’s not being much-recommended right now. Which is maybe why we like it, at least this month.
Suite yourself, however. This is, as usual, neither a recommendation to buy or sell. Just an observation and a report. Today more than ever, we’re all traveling at our own risk.