MARKETS SPECTATOR: Apple fizz

Apple's recent share price plunge translated into a remarkable bounce as the professionals stepped in and took advantage of a panic selling frenzy.

Gains on Wall Street really gathered momentum last night following more inspiring words from President Obama, who said he was confident the fiscal situation could be dealt with.

And the market finally paid attention to the stronger-than-expected housing figures as well.

All this translated into a pretty solid day’s trade locally, especially the buying that came into the market following some early morning weakness. There’s been a lot spoken about cash sitting on the sideline that needs to be invested so it’s good to finally see some of it making its way into stocks.

The pullback from the mid-October highs is around the 5 per cent mark, meaning that a lot of individual names are down between 10 – 15 per cent. From a fundamental and yield perspective, there are a lot of very attractive stocks out there, hence the bargain hunting and willingness among buyers to step up.

In terms of sector leadership, it’s encouraging to be seeing the cyclical sectors leading the way like the materials, consumer discretionary and energy. It shows that investors are feeling comfortable enough to reallocate money back towards riskier stocks rather than typically defensive names.

Whilst it’s impossible to tell how long this bounce lasts, the most important question is how aggressive the sellers are when they return. If they return aggressively then we’ll likely see markets making new short term lows while less decisiveness from the bears would hopefully see markets remain above the most recent lows and try to form a more sustainable
bottom to eventually move higher from.

My gut instinct is that we’ll move into more of a consolidation phase as the market tries to build a sustainable trough.

Apple plumbs a bottom

After plunging 27.9 per cent in almost exactly two months, the world’s biggest company has staged a remarkable bounce on massive volume, which will likely form a short-term low for the stock.

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Source: Iress

Apple has been the most high profile victim of the recent stock market pullback, plunging almost uninterrupted as profit takers aggressively sold out of large winning positions ahead of possible changes to tax rates from next January.

From a price action point of view, it’s as close as you get to a textbook example of a short-term bottom. The volume that accompanied Friday’s session was the big giveaway. It is commonly referred to as climactic volume and marked the largest volume traded in Apple since March 15.

When a huge increase in volume is seen after a strong move lower, it gives the trader an insight into the fear that exists in the market place. In this situation, it indicates a huge amount of panic selling and usually marks a point where the amateurs get caught (sold) and the professionals take advantage (buy).

This couldn’t be truer. During Friday’s session, Apple shares hit a low (amateur selling) of $505.75 before staging a remarkable turnaround (professional buyers) to close the session 0.3 per cent firmer, some 4 per cent off its low. On top of this, this major reversal occurred right on a major support level, which adds even more significance to the event.

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