WASHINGTON, June 2, 2014 – Stock in Apple (AAPL) traditionally ramps up before its annual WWDC developer’s conference each June only to get face-planted during that conference’s opening day. Yesterday was no exception as the annual AAPL smash-mouth fest continued, with the stock down roughly $10 Monday on substantial volume, taking the Apple-heavy S&P 100 index ETF (QQQ) down with it.
But like that Broadway incarnation of that lovable comic-strip redhead Annie optimistically proclaims, “The sun will come out tomorrow!” With today being tomorrow, AAPL perked back up again, closing up nearly 9 points in active trading.
The likely reason for this was all the good stuff Apple was putting out on the opening day of the conference. No real hardware news, of course. Apple is likely holding off on the kind of announcements stockholders are looking for until they actually have new or improved products to offer. That will likely happen late this summer or the traditional September iPhone upgrade hoopla.
But the news was nonetheless the sort of thing that warms the hearts of software developers and tech weenies alike. As one source put it, opening day was all about “making iPhones, iPads and Macs work seamlessly together, so that people on Planet Apple have no reason to leave, and those toting other brands might be tempted to fully join the Apple tribe.”
Apple is collecting all these software tools and upgrades into a concept it calls “Continuity,” whereby you can pick up and leave off virtually any task or amusement on one iDevice and resume it on another. All the more reason to stay within the Apple hardware galaxy and not go off to explore another one with your Android pals. It’s the sort of thing the Maven calls “harmonic convergence,” with a passing wink at his blissfully short hippie past.
While the Apple action this week has already been fast and furious, though, other stocks have tended to tumble about aimlessly. Traders—even HFTs, it seems—are genuinely confused. The market still continues with its tendency to melt up on low, low volume. But it remains touchy as well and will also tumble on somewhat heavier volume at random points in time.
We’re past the “sell in May” freshness date with no correction in evidence. Yet. But maybe this market is looking to “sell in June” instead. Or else the Maven is just being paranoid.
But with corporate profits stalling out across the U.S., predicting another flat “recovery summer” like all the rest of them, and with the ECB set to blow expectant investors off later this week by pulling away their promised quantitative easing football yet again, the Maven fears that heavy selling could materialize at any time. Yet he’s also reluctant to trim his stock positions too far as long as this market continues to melt up. It’s a dilemma, that’s for sure.
Today’s trading tips
We’ve been a little thin in the tip department lately because, with trading volume being so thin, our educated guesses run a pretty high chance of being wrong.
That said, something is becoming quite clear in the over all market. Bonds, after moving up, price-wise, in lock step with stocks—a highly unusual occurrence—seem to be losing altitude along with similar investments like REITs and preferred stocks.
Short interest in bonds is reaching extraordinary levels, according to veteran bond traders, and everyone is looking for the reason why.
Bonds have trended up in price until very recently—which means yields have been going down. The reason given for this seems to be clustering around fears of renewed worldwide recession along with the continuing financial chaos surrounding the yet-unresolved Russian thuggery in the Ukraine. For all the badmouthing the dollar gets these days, the temporary solution for domestic and international traders and funds is to go hide in U.S. Treasurys until everything blows over.
But, even if things do blow over, the gradual ending by the Fed of the seemingly endless money printing associated with their QE policies threatens to propel U.S. interest rates upward, regardless of what anyone says. This, in turn, is what may be causing the building short positions as traders are convinced bond prices will do a sudden about face, reversing their upward march abruptly.
In any event, we’re curtailing further purchases of bond- and yield-oriented ETFs for now, while selling a couple of preferred stock positions that have given us surprisingly high capital gains to this point.
We may also pare a couple of small bond positions that mature in 2019, taking outsized capital gains now before they go away in a potential bond swoon, even though we like the ridiculously high yields we’ve been getting. We’re procrastinating on this for obvious reasons, but one really bad day may scare us out.
You hate to leave 20-40% capital gains on the table in a bond position, since such trades almost never happen in the bond world. We bought these puppies at the precise bottom of the spring 2009 crash, an opportunity that likely won’t happen again any time soon. But at this point, this trade is probably at its peak, so perhaps it’s best to go away before we give it all back.
Bottom line: constructive but careful closing of positions is advisable at this point. But opportunities can and will occur, particularly in the oil patch and in industrials if anything resembling a recovery actually takes hold.
Or, if Mario Draghi and the ECB actually deliver on this week’s promise of actual monetary easing for the first time ever, in which case, it could be off to the races.
But Draghi’s promises, as we’ve noted before, are like Lucy’s promises to Charlie Brown not to pull away the football before he kicks it. She lies every time and Charlie goes down. Until otherwise proven, we expect Mario to pull the football away again. Why not? As Lucy knows, it works every time.