The Day Ahead: Don't Be a Hero on Apple

 | Jan 24, 2013 | 8:40 AM EST  | Comments
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I've never keen on dropping humblebrags; in general the mantra I use is, if you support others, you in turn will be supported.

However, I'm stepping outside that doctrine today to bring you into the world that I call home. It's a world where you give advice on stocks to a wide audience -- and, when it all works well, life is good, 'cause everybody on Earth just had to digest it. When something does not go according to plan, you wonder who really executed the advice anyway.

I bring this up as I attempt to deconstruct where my head has been on Apple (AAPL).

Nov. 8, 2012: Don't buy Apple. We'll need to see a better quarter.

Jan. 8, 2013: Buy Apple into earnings. Expectations are too low. (I reiterated this in a Webinar chat the following week.)

Jan. 22, 2013: I got cold feet on the quarter, so I sent a message that we should absorb a 3.8% loss on Apple from Jan. 8. I hate losses, but I believed the risk-reward ratio had shifted, and the technicals gave me pause. This loss was canceled out by a short on Coach (COH) into earnings. So all was not lost.

Jan. 24, 2013: I realized, after a bit of soul searching, that what I failed to truly factor in Jan. 8 was the disconnect between the low sentiment and actual quite robust earnings expectations.

The numbers did support the selloff. So now investors must wrestle with the question of whether this is the bottom quarter that was appropriately priced in, or if it's the quarter that completely resets the mindset of the Street regarding sentiment and estimates. If it's the first option, you should go and buy the stock, since the second half will likely be fundamentally different. If it's the second, you don't buy off these numbers -- because Apple's fundamentals stand to deteriorate further in the next quarter or two.

Let's not try to be a hero. Stay clear of Apple until the market gives you the trade -- and, unfortunately, the impending 10-Q SEC filing is unlikely to tell us anything that could sway sentiment.

In Other News

Face the facts: The market is on freakish autopilot. It does not care about earnings that have come in mixed to outright weak, nor about the accompanying tepid outlooks. It does not care about any cautionary tales told in second-tier macroeconomic-data releases. The only vision the market is seeing is the one offered by the hopium growers.

Honestly, between today and the January employment report, where is the catalyst that might feed the empty stomachs of the bear community? I'm not sure such an event exists, though naturally people will continue to wage a technical debate -- that is, on the idea that stocks are overbought and due for a no-news-driven pullback.

But start thinking deeply on the January jobs report. Early on, I'm  seeing a sort of lose-lose aspect to it.

First, softness has been implied by underlying leading components in Federal Reserve manufacturing surveys, and that could be tough to square with the jump in stock prices year to date, notably in the small-caps. Second, a number that surprises -- as the market advance has indicated could happen -- stands to reignite the debate over whether the Fed will end quantitative easing. That's especially so following the swift ascent in stocks, less near-term risk from debt-ceiling negotiations and a rise in inflation expectations. 

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