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January 9, 2007

Range Bound

The potentially bullish setup in the S&P 500 highlighted in yesterday's post made no headway today. In fact, at one point the market seemed ready to slip into full breakdown mode, but the descent was contained in the same price zone as yesterday's whipsaw action and then flung higher.

stock chart

So, the SPX remains range-bound and we must sit patiently and await resolution. My near-term bias is still for higher prices, but keep that opinion in context of the fact that I believe the market is forming a major top and may turn sharply downward at any moment. My money rests on the latter bet, and I have an itchy trigger finger to increase those bets. These near-term prognostications are simply a tool for keeping me out of the market while the waters are cold.

Silver Wheaton opened with a small gap lower, setting off alarm bells in my head. I was quick to close yesterday's trade for a miniscule loss. Fortunately, my morning instinct was sharper than yesterday's eagerness, as SLW shares shed 4% of their value by midday. The shares recovered a bit as silver rallied 2%, but then slipped again to close not far off the lows. Price settled right on the trend line after an earlier piercing, so some fairly hefty reversal action will be necessary to rekindle my interest in this setup.

Research in Motion, on the other hand, set off fireworks by plunging 8%. The slippage was sparked by news that Apple released its new iPhone. The same news sent Apple shares soaring 8% as enthusiasts of the company view the product as the next iPod. The news, in my view, provides opportunity to short both companies. There is no doubt that RIMM's best days are behind it. Competition has been a long time coming, and the future of RIMM's financials will be chock full of margin squeezes and write-offs.

Apple is entering the cell phone fray at the market's peak. A saturated market is evidenced by the troubles recently revealed in earnings calls from Motorola and Nokia. Therefore, it is highly unlikely that the iPhone will provide the same bang to their balance sheet as the novel iPod, and the ensuing disappointment will cause investors to flee. The run-up in AAPL shares is simply a bonus to short sellers... at least those who were not already short!

Disclosure: None


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