"The best part about buying Apple is that I don't care if anyone talks about buying Apple".
- Warren Buffett
Warren Buffett is talking about Apple this morning and is driving it higher just like the bitcoin promoters he criticizes that drive cryptocurrencies higher. He does make a good point in comparing a real business to something that has no intrinsic value and is a function of pure supply and demand. But the short-term impact of Buffett and Action Alerts PLUS holding Apple (AAPL) and the market isn't much different than any other promoter.
The Buffett (Berkshire Hathaway (BRK.A) (BRK.B) ) driven rally continues this morning and is picking up some steam as the Orcle pontificates on CNBC this morning. The concern about a trade war with China have been set aside and the only thing that matters from Friday's job report was that the household unemployment rate continues to fall to record low levels.
The dollar remains strong, bonds are holding steady, oil is pushing over $70 for the first time since 2014, but the market has forgotten all its fears and worries as it basks in the folkie wisdom and sunny optimism of Uncle Warren.
Back in January and for much of the last few years, market players would be looking for our old friend, the V-shaped bounce, to take the market straight up to new all-time highs. After a day like Friday, when there is strong breadth and steady buying, the momentum would kick-in, fear of missing out would bubble out and market players would be so anxious to buy any dip, that no dip would occur.
The old rules of technical analysis tell us the V-shaped moves are the exception and not the rule, but that changed in recent years. However, since the end of January the V-shaped bounce has lost its power. We've had several good rallies after breakdowns but the bounce fizzled out before it could return the indies to the highs.
The bounce in February, following the 'short VIX' blowup, was quite energetic but the subsequent bounces in March and April haven't been quite as buoyant. The bounce we are working on now is just one day so far and could easily last a bit longer but the overhead resistance is quite formidable. The bears will be watching the 50-day simple moving average at 2680 of the S&P 500 and then the 2700 level above that. If we can cut through those levels the bulls will be talking about the V-shaped bounce once again, but they have their work cut out for them.
There should be plenty of headlines for the market to react to this week as we await details of trade negotiations in China, a number of Fed members make comments and the withdraw from the Iran nuclear deal reaches a decision point.
Right now market players are enjoying a bounce but earnings season is winding down, seasonality turns negative, technical overhead lurks and the potential for market moving headlines is high. There are some good stock picks to be had but a high level of caution is warranted.