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"Never stand begging for that which you have the power to earn."-- Miguel de Cervantes
You've made it. This is the day that both investors and fans of Apple Inc. (AAPL - Get Report) have been waiting for. In the wake of one natural disaster after another, and all kinds of news regarding the political, as well as the geo-political ... voila!! Suddenly, we'll be presented with business news, and not just any business news. Every September, the world's greatest (yes, I am long the shares) consumer electronics firm puts together a dog and pony show for its fans, for its investors, and for the media. This year is different. This year the show goes on from the Steve Jobs Theater, a new auditorium inside a glass building that overlooks the firm's new $5 billion campus.
The new campus does not get me, the investor, fired up. I don't care at all. What I do care about are the new products, and their pricing, as well as their timeline. Three new phones? OK, well two are updates. We've seen that movie before.... or have we? Longer battery life is the scuttlebutt on these two. That would be huge for loyal fans of Apple -- which is also a holding in the Action Alerts PLUS charity portfolio that Jim Cramer co-manages. The main event, though, will be the iPhone X. Supposedly, the new introduction will include a smattering of fancy improvements that don't make for good reading as you rise from your pillow. What the new phone boils down to is a larger and sharper display than previously seen in Apple's LCD offerings.
Do I need a fancy display? No, but I might really think it was cool if I were 30 years younger, and less technologically adverse. The other two improvements that I've read about are interesting even to an old-timer like myself. Facial recognition technology is an intriguing development, although I would love to see how it works for a male who shaves only once in a while, as is a common look for young males in 2017. The other key development would be wireless charging. Just think about how convenient that would be not only at home, but when on the road?
You will probably hear something on the Apple Watch. You might also hear news regarding Apple TV, or maybe even the Home Pod. None of that will move the needle for investors and traders on Tuesday. What will move the needle will be the price point for that iPhone X, which has been widely reported at over $1,000. Just as key will be the timing of its availability, and just how available it actually will be.
The price is reflective of a rise in component costs, and probably cannot be discounted unless poorly received. That would be very bad. The timing of this offering will have to be soon. The street is looking at Sept. 22. That's next Friday. Widespread availability will also be key. Any perceived scarcity or delay will result in trader concerns over the firm's ability to deliver after issues regarding production surfaced in recent months. Many investors and traders look to these events as a chance to enter into long positions, as there can be an initially negative response after such a public buildup.
My Take on AAPL
The stock is not technically overbought coming into this event. On a six-month chart, you have been running with a negative-looking moving average convergence divergence (MACD) for most of September, though the 12-day exponential moving average (EMA) has started to curl in a northerly direction as the 26-day has sagged slightly. What is key for me as I look at the chart has been the rising 50-day simple moving average (SMA), now standing at $154.41, more than seven clams below the last sale. This is precisely where this name found repeated support in early August as well as sharp resistance throughout May and into June. For those long the stock, averaging down now would be almost impossible if you have held the name for any length of time. I would need to see a price below that 50-day SMA for me to buy more. My target price for the trader is $170; for the investor, considerably higher than that if tax reform brings with it some repatriation of funds.
Oh, Happy Day
When I told you I was bullish Monday morning, I expected a rally led by the insurance companies. That we did see, but this rally was broad, really broad. The S&P 500 closed at record levels, running more than 1% higher. All 11 sectors finished the day in the green, with seven of them either closing up a full percent or close to it. (You may have noticed our SPX 2489 level make a stand comparable to that of the 300 at Thermopylae. Our level held all day. The Spartans finally cracked on the third day. Expect the level to be re-tested.) As for those financials, the insurance companies did indeed roar. Travelers (TRV - Get Report) , Progressive (PGR - Get Report) , and American International Group (AIG - Get Report) all outperformed the industry group, which turned in an aggregate gain of 1.7% on the day.
That's nice, but amazingly, the insurers did not lead the sector. The financial sector was led by the banks, as a round of relief selling hit U.S. Treasuries. As a group, those banks rocketed up 2%, and were led by Morgan Stanley (MS - Get Report) , KeyCorp (KEY - Get Report) , Fifth Third (FITB - Get Report) and Citigroup (C - Get Report) , despite Citi having warned on third quarter trading revenue. All four of those banking firms saw their equity prices rise at least 2.3% on the day. Shazam.
The spark? That was the move out of safe-haven assets. As for the U.S. Treasury, it picked the wrong day to try to sell $24 billion worth of three-year notes. That auction hit the tape at an awarded yield of 1.433%, with a bid to cover of 2.7. The coverage, by the way, was the weakest seen for the three year since April. The awarded yield was also 0.6 basis points above where the three-year was bid in the secondary market at that time. Indirect bidders (foreign accounts) took down only 46.2% of the issue versus a six-month average of 55.7%. In short, you had a sloppy and weak auction.
These results caused further selling of U.S. Treasuries throughout the afternoon. Why is that important to us right now? Well, Treasury looks to put $20 billion worth of 10-year paper to the tape Tuesday afternoon, and then on Wednesday, it tries it again with 30-year bonds. The government sure would have saved themselves a few bucks had these auctions taken place last week. In the meantime, equity investors are enjoying the ride. For your information, futures trading at the CME are now pricing in a 42% chance for another rate hike by the FOMC this year, as opposed to a 36% probability late last week. The U.S. 10-year is trading at a yield of 2.153% early this morning, indicating further weakness ahead of Tuesday's sale.
More strategy ahead of Apple's big reveal.
06:00 - NFIB Small Biz Optimism Index (August): Actual 105.3, July 105.2. Small business optimism ran quickly to the upside after last November's election, and has held at very high levels ever since. The headline number has been propped up of late by expectations for higher sales, employment, and improved expectations for the broader economy. This item has not only run at this high level, it has repeatedly beaten expectations all summer. I would expect some negative reaction next month, when the natural disasters that have struck both Texas and Florida would have an impact.
08:55 - Redbook (Weekly): Last Week 4.4% y/y. This measure of chain store sales at the retail level has shown greatly improved strength over the last three weeks, the last two in particular. Is retail dead? This series is starting to say "no". We'll see August retail sales this Friday, and another strong print is expected ex-autos.
10:00 - JOLTS (July): Expecting 6 million, June 6.16 million openings. Even with unemployment trending ever lower, this item still seems to be trending sideways to higher. Through it all, participation remains low. This data is dated material, and will not impact Tusday's marketplace.
13:00 - 10 Year Note Auction. The U.S. Treasury auctions off $20 billion worth of 10-year paper. Last month, on Aug. 9, Treasury sold $23 billion worth of this debt at an awarded yield of 2.25%, and with a bid to cover of 2.23. Indirect bidders took down 57.8% of that issue, which is a tad on the weak side. This morning, 10-year treasuries are trading at a yield of 2.153 % ahead of this auction.
Sarge's Trading Levels
These are my levels to watch on Tuesday for where I think that the S&P 500, and the Russell 2000 might either pause or turn.
SPX: 2512, 2499, 2489, 2481, 2469, 2460
RUT: 1429, 1421, 1415, 1406, 1400, 1594
Today's Earnings Highlights (Consensus EPS Expectations)