9:00am (EST)
“We are halfway through 4Q numbers that continue to come in ahead of Wall Street’s estimates. Nearly 70% of the companies that have reported have beaten the suit-and-ties forecasts but let’s not forget the bar was lowered coming into the season. They have stayed on the sidelines in raising earnings and that could be good news for the bulls come 1Q earnings in April. If companies continue to come in with better-than-expected numbers, it would be helpful for a continued rallied but this is the last “big” week before the announcements start to slow.
Tech finally showed some strength as Apple (AAPL, $474.98, up $6.76) was up over $20 for the week and may have bottomed (at least temporarily) at $440. We mentioned a few weeks ago the company’s weight on the indexes and any rally in Apple will help the bulls push new highs on the S&P 500 and Nasdaq.
We have a feeling Apple shares could push $500-$510 before eventually falling back below its 52-week low of $435, to maybe $410-$400. This would coincide with the pending 5%-10% pullback that will come at some point. If shares clear $510 then we would expect a rally up to $550 but Apple needs a wow product instead of refreshes or they need to get busy on the acquisition path to push growth again.
As far as a new product, we are hearing Apple is working on a watch-type device that could operate on the same platform as the iPhone. Then there is the TV which may or may not be in the works for 2013.
As far as marriages, we have mentioned time-and-time again Apple should buy TiVo (TIVO, $13.21, up $0.25) and the no-brainer would be Twitter but two more companies they should go after are American Tower (AMT, $77.06, $1.17) and Akamai Technologies (AKAM, $35.42, up $0.16).
American Tower would be the biggest merger as the company’s market cap is north of $30 billion but they operates as a REIT (real estate investment trust) and it would give Apple a powerful wireless and communication infrastructure or platform to build out it business. It might take care of the shareholder lawsuit that popped up as Apple could say it needs its $140 billion war chest to make these type of acquisitions.
Akamai just got a 15% haircut after disappointing the Street and missing estimates. Shares dropped from $41 to $35. Its market-cap is just over $6 billion and they provide content delivery.
Besides Apple, Merger and Acquisitions (M&A) could fuel a higher rally in 2013 as things pickup and we are starting to see early signs that it could be a great year for M&A deals. Historic Price-to-Earnings ratio on the S&P 500 have been much higher and companies have loads of cash on their balance sheets. Plus, money is cheap as dirt to borrow (if you can get a loan) and sooner or later the banks will let go of their purse strings.
The Dow Transportation Index ($TRAN) is approaching 6,000 following last week 54-point pop and is up over 11% for the year. We have also mentioned this index as a key indicator of bullishness or bearishness and the steps the bulls have been climbing are staggering. If the bears take the elevator down, it could be a quick trip to 5,400 on any market pullback or correction. A drop below 5,800 would be a good clue to load up on index put options so keep this in mind down the road.
We continue to see mixed to up Monday/ Friday closes and the last time the S&P finished lower on a M/F was mid-January and that was only by a fraction. We will have to watch this week’s action because February Friday option expiration has been bearish in recent years and will be here this Friday. This would mean the bulls need a good start to the week or the odds favor a negative M/F close for the first time in over a month. The market will be closed the following Monday and ahead of a 3-day weekend so there may be some profit taking.
The bulls are on a 6-week win streak and, although the Dow slipped a little last week, the index traded above its previous week’s high on Friday. We have given you a few simple clues to watch for to the upside on all of the indexes and we have called this market right for months despite everyone’s fear for a pullback. We don’t say this to toot our horn but to remind you that it is important to trade your plan no matter what the pros and talking heads are telling you.
We continue to say that calling a market top is never easy but we have been on point since early December as out 4% upper-end targets and fluff targets have triggered.
We could say we are surprised but all of the clues were laid out like bread crumbs and we have marked our trail if and when there is a retreat.
The market is following the same pattern as last year where a lot of the pros were not in the game coming into the New Year. They were out and called for a pullback through March as money-managers fell behind the curve and played catch up all year. We always remind our subscribers the pros like to pack it in sometimes a little early to take long vacations and when there was little action before Christmas, most were flat. Most were worried about the Fiscal Cliff. And most of them have missed this year’s surge. There is still a lot of head scratching on Wall Street as to why the market continues higher and there are a lot of money managers and investment newsletters still calling for a correction. Last year’s market pullback didn’t come until April and while there are some serious headwinds facing us over the near-term, keep this in mind as well.
There has been some bipartisanship between the zombies lately and if they can avoid the March sequester, or looming budget cuts, and come to some type of an agreement, the bulls will have more reasons to push new highs. The head zombie will be speaking Tuesday in his State of the Union address and although his talk has been brash of late, we are hoping he tones it down a little and talks more about a compromise than kicking the can down the road.
The targets we need to watch for on a possible downside correction are as follows: (subscribers only)
Otherwise, we mentioned the bulls haven’t come this far not to ring the bell on new 52-week peaks for ALL of the indexes and all that remain are the blue-chips and Tech. If the indexes get there, great, and we will continue to stay long. If not, wait for the downside targets to trigger before going short.” (from 2/10/2013 Weekly Wrap Update)…
The indexes stayed in a tight range all week as the bulls and bears each won some key battles. The market felt like it ended lower but a deeper look at the numbers reveal the bulls actually won the week. February has historically been a bearish month for the market with losses of 1% or more, on average, but the mixed week didn’t slow the bulls down as some of the indexes hit fresh 52-week peaks again.
There are warning signs the market could be topping and both the bulls and bears are making good arguments as to why this could be the top, or, if the market will get one last surge higher. With earnings winding down, the focus will turn towards the zombies and economic news here at home and abroad will start to become more important as GDP numbers around the world continue to fall.
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