Before we get to Apple (AAPL) -- oops, I mean the stock market -- let's begin with gold. Three days ago, in Columnist Conversation, I noted that I expected metal to rally off that $1,700-per-ounce area, and that's what we saw. The quality of the rally would have depended on whether gold pulled back and broke the line -- and, as you can see, the quality was lacking. Gold was unable to get through last week's highs, so a break of $1,700 now looks quite doable to me.
If that happened, I would expect gold to come down and find that downtrend line (A) which, at present comes in around $1,650. Here comes the tricky part: Depending on sentiment and what it looks like if or when gold gets down there, that trip down might be the right shoulder of a head-and-shoulders bottom. However, for now, let's just look for gold to get down there.
Keep in mind that this view on gold would tend to go along with my view that the euro-dollar pairing is likely to have trouble in the $1.33 area. On Thursday it rallied to $1.3320, on the news of a Greek deal, only to be turned away. It would not surprise me to see the euro test the $1.31-to-$131.50 area in the next couple of weeks.
Turning to equities, Apple was clearly the stock of the day and probably of the week. I'd say it's a pretty good bet that, should Apple again head up toward $500 Friday, the folks at CNBC are likely to give Apple a special box in the lower right corner with a count-up to $500. You might recall they did this to Bank of America (BAC) in December when it was at $5. (Now that price is at $8.)
Apple hasn't done anything wrong. It has simply gotten ahead of itself, and it's become the one of the only games in town this week, and it is hard to imagine that the price can keep rising in this same manner.
Of course, while everyone was focused on Apple, the banks rallied on their good news, only to turn lower later in the day. Of course, these days "lower" is a euphemism for "wasn't able to rally."
On Monday I said that, on a closing basis, the Russell 2000 was at some resistance. You might have noticed the Russell has taken the week off by going sideways, underneath that resistance. In order to get over that line, the index now needs to convincingly get back above 830.
This action in the Russell is important to watch, because I noticed a sort of double-bottom in the Nasdaq-to-Russell ratio, and previously these formations have led to corrections. If the Russell can get going, or if Apple -- oops, I mean the Nasdaq -- can at least stop its outperformance, then this double-bottom can be erased. This is why it's important to pay attention to the Russell now.
In my view, the current ratio is at too high of a level for it to lead to a major market correction (see spring 2009, when the level was similar and the correction was mild). Clearly, though, it tells us this relationship needs to change from this week's pattern, and soon.