Apple Death March Continues

NEW YORK (TheStreet) -- The Apple (AAPL) death march, mirroring the 2009 end-of-year action, continues. All those investors who are loaded up on January out-of-the-money calls -- in hopes that the Verizon, China, iPad/iPhone, MacBook Air, Apple TV and earnings catalysts will lift the stock -- have failed to identify the current market trend andhave failed to accurately interpret historical precedent. We are in avery difficult investment environment right now and must investaccordingly. Consider the following market moving news items of the day:

  • WikiLeaks is set to release Enron-like internal documents from amajor U.S. bank sometime early next year. As if the banks didn't alreadyhave enough to worry about because of the foreclosure fiasco, now investorsare going to deal with the uncertainty as to which bank will get hit.The path of least resistance is to the downside for banks.
  • European contagion fear increased after the Irish bailout.This is adding fuel to the market correction even if its effect isexaggerated by over-eager bond traders. It looks like Europe debtcontagion will continue to be utilized as a primary driver wheneverthe market is in need of a technical correction.
  • The market is no longer certain that U.S. tax cuts are coming in2011. President Obama is meeting with both sides to discuss the issue. So far, we see Democrats taking a hard line stance against the pro-growth policies.
  • Bad sentiment surrounding banks, Europe, and tax policy is not a goodthing for the stock market. As we measure the pulse of the market's newidentity in Stage Three of the recovery, we are hoping to get a clear pictureof its new trading range. During Stage Two, the Dow liked to dip intothe 9,000s before investors were compelled to buy. I doubt we willgo that low in Stage Three. This should be a period of higher lowsand higher highs but we will have to wait and see how low this sellofftakes us.

    Actually, the 2009 Apple comparison could be setting upquite nicely. During that death march, the only productive time to ownApple was from the Dec. 7 low of $188 until it reached $209 onDec. 24. If we can get an entry below $300 during the first 10days of December, we will be compelled to buy.

    During a death march, it is important to remember that events and datesdo not serve as catalysts. The only meaningful catalyst is priceaction. Take a little cash to buy dips and sell rips. We remain veryhappy to have 59% of the portfolio in cash with the majority of ourApple exposure in 2012 and 2013 LEAPS. Exposure to other stocks andthe market in general is non-existent for a reason. The investmentclimate post QE2/elections remains highly uncertain.

    I'll be sending out the November Economic Timing newsletter at the end of the week. At this time of year, it is a great tradition to create a list of predictions for the new year but most analysts delvetoo far into the bizarre and unimportant. Instead of releasing anoutrageous list full of shocking but highly unlikely phenomenon likewater shortages and debilitating terrorist cyber attacks, we are goingto attempt to provide you with something that will help to generateinvestment returns. Stay tuned for our list of 15 market-movingthemes that will guide Stage Three of the recovery.

    At the time of publication, Schwarz was long AAPL.

    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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