Apple used to have market-defining products that were clearly better than its competition. Consumers were willing to pay more for Apple products, but there are numerous signs that the company is starting to protect its franchise as innovation falls and as competitors such as Samsung begin to catch up.

In response to "Chaminade" Joe Terranova, I said the key fundamental issue to watch in the next two quarterly reports is whether the new iPhone 5 entices old users to upgrade -- in other words, does the upgrade cycle lengthen? That would not be the death knell for Apple's shares, but it would put in a big hurt to the long-term investment thesis.

Given how oversold Apple's shares are, however,a rally at any point is now possible. For that reason, I have covered my PowerShares QQQ ( QQQ) short.

Let's go to the tape at CNBC

Tug of War
Originally published on Tuesday, Oct. 9 at 9:01 a.m. EDT.
  • We have a struggle between inert fiscal policy and expansive monetary policy.
  • The September small-business confidence index (issued by the National Federation of Independent Businesses) came in at a disappointing 92.8 compared to expectations of about 1 point higher and to 92.9 in August.

    This is the fourth drop in the last five months as respondents cited the uncertainty of government policy and economic growth combined with the costly burden of health care.

    This report highlights that the policies of our leaders in Washington, D.C., are inhibiting employment growth. In turn, the domestic economic recovery is tepid, producing a serious challenge to corporate profit growth in this year's second half.

    Market participants are looking through this lethargy and relying on the global monetary policy put to protect the market's downside.

    This tug of war between borderline irresponsible fiscal inaction and weak fiscal policy and expansive monetary policy defines the current market condition.

    In the last few weeks, this tug of war has resulted in a draw with sideways market action.

    Where does this leave us?

    The upside can come from a combination of a Romney presidential win next month, an acceleration of domestic economic growth and/or progress on the fiscal front in late 2012/early 2013.

    The downside can come from a combination of the assertion of geopolitical risks (in the Middle East), which would elevate oil prices, a worsening domestic economy and/or an inability to address the fiscal cliff.

    Given the current level of stock prices, I am continuing to side to the downside argument.

    I start the day about 25% net short.

    At the time of publication, Kass had no positions in stocks mentioned.

    Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

    If you liked this article you might like

    How to Get Rich Using Warren Buffett's Favorite Stock Market Indicators

    How to Make Your Life Successful Just Like Billionaire Warren Buffett

    How to Live Just Like Billionaire Warren Buffett

    How to Make a Deal Like Billionaire Investor Warren Buffett

    How to Invest Like Billionaire Warren Buffett