Apple Will Make All the Difference

Today we are seeing the return of an oldfriend. We are seeing the Apple ( AAPL) slingshot attempting to halt theselloff.

Early in the day, Apple was up $3 and as the Dow sold off 130points, Apple remained in positive territory and finished the day up $6.60. Can the Apple slingshotdo it again? Will the market leave its worries behind and use BlackFriday as a positive catalyst? According to recent history, theoutcome of this week's action will determine the next three months ofreturns.

If Apple can reaffirm its slingshot ability, it will most likely followthe 2007 path that witnessed a November 19 low of $163 followed by arise to $182 by November 30 and $198 by December 31. November 19,2007 was the Monday of Thanksgiving week, Tuesday saw Apple rise $5,Wednesday, Apple was flat, Friday Apple was up $3.50 and then a runwith only 2 down days brought Apple to $195 by December 10.

In 2007,it was wise to buy the November low, which is why we added Apple LEAPSto our portfolio last week with Apple hovering near $300. Catalystssuch as iPad, Verizon ( VZ) iPhone, China, MacBook Air, Mac App Store, andeven Apple TV give Apple stock solid reasons to repeat the 2007performance.

But what if the market is too stubborn to rise and the Apple slingshotfails this week? Apple investors know that without a good market, thestock is unable to buck the trend, because of its role as marketleader. If the slingshot doesn't work, then we are in for a repeat ofthe 2009 performance.

Thanksgiving week 2009 witnessed Apple $205 onMonday, $204 Tuesday, $204 Wednesday, $200 Friday, and then a drop to$188 by December 7. From that low, the stock was able to muster anice run to $214 on January 5, but subsequently sank to $192 onFebruary 4.

As I mentioned last week, the market has entered the "heart of the correction." Everything from retail sales to Warren Buffett's New York Times letter to Bernanke's QE2 toEuropean debt contagion to U.S. tax policy is being interpretednegatively. The market is clearly in a bad mood.

The 35 largest banks being lead by Bank of America areapproaching 52-week lows because they need to raise $100 billion moreby 2015 and investors remain skittish about the potential offoreclosure woes. Although Ireland looks close to resolution,investors quickly want to talk Spain and its larger implications.

Themedia is obsessed with keeping the gold rally alive based on the fearof inflation. Keep in mind, the market is in the process of forming anew identity that we are calling stage three of the market recovery.Nobody knows which variables will lead us and nobody can be sure ofthe direction.

The year 2007 was a great one to be fully loaded in short-term Apple options, because the stock rise outperformed the premium depreciation. The year 2009was a terrible one to be in short-term options, because the stock risewasn't enough to keep up with the loss of premium.

This is a week of divergence.

Recall the words of Robert Frost: Two roadsdiverged in a wood, and I, I took the one less traveled by, and thathas made all the difference. Determiningwhether Apple 2010 will act like 2007 or 2009 will, as Robert Frost soeloquently opined, 'make all the difference'.

At the time of publication, Schwarz was long Apple.

Jason Schwarz is an option strategist for Lone Peak Asset Management in Westlake Village, Calif. He is also the founder of the popular investment newsletter available at www.economictiming.com. Over the past few years, Schwarz has gained acclaim for his market calls on the price of oil, Bank of America, Apple, E*Trade, and his precision investing in S&P 500 option LEAPS. His book, The Alpha Hunter, is set to be released by McGraw Hill in December 2009.

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