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December 6, 2005

An Apple a Year

When market historians look back at the 2005 market rally, they may refer to it as the "Google Rally," but there is another large-cap tech stock that has outperformed this illustrious spec stock. Apple stretched its way to a new, all-time high today, and its Ipod-fueled rise has been meteoric. The stock is up 131% this year, despite the fact that during a 3-month period (from February to May), it fell 30%. Since the start of the October rally, AAPL is up 54%. It hasn't had a losing month since June, and its performance comes on the heels of a triple in 2004.

All these facts are fun to ponder, but they are trivial when trading. Traders with an eye for mean reversion have to be stalkers here, but shorting something just because it's gone up is a quick road to poverty. My statistical model has kept me out of Apple so far, and I will need a strong signal to bet against this stock's momentum.

As for the market as a whole, yesterday's interpretation of a shot across the bow may turn out to be prescient. After powering the market higher for most of the day, the bulls lost their grip in the last hour, and the market tanked and went out on its lows. Given weak technicals in combination with just about everyone conceding a continuation of the year-end rally, we may have just seen our near-term top.

The dollar failed to hold on to its morning gains, but no discernable trend has revealed itself, yet. I am closely watching for a decisive break out of its current trading band between 90.90 and 92.53. A decisive break to the upside would chase me out of my shorts, while a break to the downside could herald the return of Papa Bear.

Gold and silver reversed early losses to set more new highs. I continue to believe that the surprise for the shinies at this juncture will be a sharper break to the upside. Markets have a way of punishing the masses, and right now the masses are sitting on their hands wondering whether or not to enter the metals fray. It seems some of those on the sidelines may have started to step across, tough, since the miners were up sharply today. Pan American Silver touched $20 for the first time ever, and Newmont surged to its highest level of the year. The last time NEM was at this level, gold was $70 cheaper. We may have more fireworks ahead of us.

Disclosure: Long PAAS, NEM Calls


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