The markets were nearly unchanged Friday on mixed volume. A report of higher Chinese consumer price inflation pushed expectations for further monetary stimulus from the Chinese central bank further out. Chinese markets led the way in 2006-2007 so their economic fundamentals are closely watched. The S&P 500 is near resistance at its September high. The NYSE short interest ratio, while declining off its five-year high, is still at a high level. If the markets can continue higher, this could force the shorts into covering. Overnight, Chinese shares surged after a regulator said the country will grant foreigners greater access to its stock markets, with the Shanghai Composite Index rising more than 3%.
The big news affecting the NASDAQ futures, which are down over 16 points at the time of this writing, is the big drop in Apple Inc. (AAPL) which is trading down -3.5% premarket after a news report said suppliers of a key component of the iPhone 5 are scaling back production due to slower-than-expected global demand for the mobile device. Allegedly, iPhone display orders have been cut 50%. We are getting asked about AAPL so much these days that even U.S. News & World Report is asking us about our "dead right" call on AAPL based on articles we wrote in Forbes and MarketWatch.com over a month ago. Since AAPL carries a signifcant weighting in the NASDAQ Composite and NASDAQ-100, both are trading down over -0.6% premarket. Pre-market AAPL is trading down towards the $500 level which is roughly where the neckline in its head and shoulders formation is located. A high-volume breakdown and downside "breakout" through this level would constitute a short-sale signal. AAPL is a fantastic example of how the top in a big, leading stock always comes when all the news is the rosiest, and investors begin to view the stock as a bullet-proof "sure thing," becomiing ever more attractive to willing suckers who buy the stock on the way down because they think it is "cheap." Today we find out why AAPL has failed to rally with the market over the past month or so, as well as why it has sold at 11 times forward estimates, proving that while opinions are frequently wrong, markets seldom are.
Of course, there is AAPL, and then there is the rest of the market, which remains in an uptrend although it remains to be seen whether troubles in Apple-land spread to the rest of the market, where we have seen more breakouts and constructive action among the new leaders.