By James Hyerczyk
Commodity Trading Advisor
Up until March 27, the rally taking place in the global equity markets made it look like the world economy was back in “apple pie order.” There didn’t seem to be a care in the world since austerity measures were kicking in, Greece was rescued and the U.S. economy was showing signs of turning the corner.
Interesting expression “apple pie order”. Nobody is certain of its origin. Some say it’s a Scottish or English expression. Others claim it originated in New England when some writer observed the housewives of New England cutting their apples in even slices then organizing them in pie pans, row upon row. Like the women of New England, investors like to have everything in its place. It makes it easier to approach the markets with clarity and conviction.
Sometimes this order is interrupted and markets stop rallying. Equities start to top as the fundamentals begin to change, creating uncertainty and fear. Sometimes the markets begin to experience wild disorder which can become an “apple of discord.” This expression comes from ancient mythology when the gods and goddesses were asked to give a golden apple to the most beautiful goddess. With so many stocks going up at one time, money was flowing freely. Investors didn’t have to spend that much time on deciding which stock was the best, liquidity was high, and the trend was your friend.
Stocks rose rapidly from December to March. Portfolios were made whole once again as the indices almost fully recovered from the 2008 to 2009 sell-off. They also doubled from their 2009 bottom. Retirement accounts were made healthy. Just like “an apple a day keeps the doctor away”, in this case, a rally a day made investors a little complacent. Stocks were rallying, volatility was dropping and some of the fear and uncertainty that had plagued the markets throughout 2011 seemed to have been lifted.
But there is another belief that is based on fact. This belief is tied to the expression, “One bad apple spoils the barrel.” Just like when an apple begins to go bad, ruining the other apples around it, one bad stock, economic report, sovereign debt crisis, or country’s fiscal irresponsibility can cause everything to act bad.
This seems to be the theme in the stock market at this time. Although it is hard to pinpoint exactly what put in the top in March, or what is causing the sell-off at this time, it’s not that important that we identify the one bad apple. It’s probably more important to remove the bad apple from your portfolio and put your effort into finding the good ones.
Decision Time For Apple Inc. (AAPL) Investors
The day after Apple Inc. (AAPL) reached its peak at $644.00 on April 11, I wrote an article titled, “Apple Stock Not Immune to European Turmoil”. In the article, I said, “Depending on how one measures a ‘correction’, Apple Inc may be vulnerable to a correction of at least 15 percent from the $644.00 top to $547.40, or at least 50 percent of the rally from $363.32 to $644.00, to $503.66.”
Well, Apple Inc. reached $541.04 yesterday, putting it at a level that may be attractive to value-based traders. Besides being relatively “cheap” compared to where it was a little over a month ago, what would be the compelling reason to buy this stock at this time?
American statesman Bernard Baruch has been credited with saying, “Millions saw the apple fall, but Newton asked why.” Well, I’m not Newton, but I have to say that “Millions have seen Apple Inc. fall 15% from the top and they are asking why”.
The markets are made up of investors and traders. Investors may like Apple Inc. where it is today. Certainly in 2011, the stock survived a number of 15%+ corrections, but momentum seems to be driving the stock price lower at this time, making it even more vulnerable to additional selling pressure.
It’s difficult to stand in the way of momentum. We tell our kids to set a rolling soccer ball before they kick it, yet when a stock is rolling lower, investors tend to “kick” it before it sets. Looking at Apple Inc. from this perspective, it is better to wait for the stock to stop going down before considering your next buy. Furthermore, from the perspective of “I couldn’t buy it at $363.32, and I didn’t like it at $644.00”, waiting for a 50% correction to $503.66 is probably a good idea at this time.