Stocks Need Apple Blossoms to Continue Rally
Even with a down market Monday, all major equity averages except the Nasdaq 100 Index were overbought on their weekly charts with 12x3x3 weekly stochastic readings between 83.29 for the Nasdaq and 92.31 for the Dow transports. The Nasdaq 100 has a stochastic reading rising at 77.76, which is still below the 80.00 overbought threshold. While the markets became overbought, the weekly stochastic reading for Apple was extremely oversold with a reading well below 20.00 at 12.89.
With overvalued fundamentals and overbought technicals the market reality, my suggested investment strategy is to book profits and raise cash on strength to risky levels, not what the crowds on Wall Street are touting, which is stocks are cheap and to buy pullbacks.
It seems that whenever stocks are overvalued and overbought and at or near all-time highs investors want in when they should be booking profits. And vice-versa, whenever stocks are undervalued and oversold investors want out. Buying high and selling lows seems to happen at every market high and at every market low, including at the March 2009 lows.
The anomaly of Apple, the proverbial market leader to the upside, is that this stock has become a market drag. This leads to my conclusion that this undervalued and oversold stock must blossom for the stock market rally to continue. I last covered Apple on Feb. 5 in Bobbing for Apple, Amazon and Google Shares, where I showed $421.05 as my annual value level a semiannual pivot at $470.21 and my annual risky level at $510.63.
This morning Apple is blossoming above its semiannual pivot at $470.21 in pre-market trading on the news announced Thursday afternoon that the company will trim its cash hoard by $45 billion over the next three years, including special dividends.
Weekly Review of the Key Levels for the U.S. Capital Markets
The Yield on the 10-Year Treasury Note (1.950%): The weekly chart still favors higher yields, but my annual pivot at 1.981% remained a magnet after a testing 2.059% on Monday. The record low yield was set at 1.377% on July 25, which was before the Federal Reserve announced both QE3 and QE4. This implies that additional Fed purchases of longer dated U.S. Treasuries and mortgage-backed securities are factored into the overall structure of the bond markets. My annual and semiannual value levels are 2.476% and 3.063% with the annual pivot at 1.981% and a monthly risky level at 1.843%.