Apple’s Shares Broke Out To A Three-Month High

Commenting on Apple‘s shares hitting a three month hight and today’s trading Gorilla Trades strategist Ken Berman said:

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q3 2020 hedge fund letters, conferences and more

The Drop In Volatility

While this afternoon’s strength has to be taken by a grain of salt due to tomorrow’s Fed announcements, the drop in volatility and the performance of small-caps were promising for bulls. The typical afternoon short-covering rally was likely exaggerated in the illiquid pre-Fed environment, but that doesn’t make the new record high in the Russell less impressive, especially following such a historic rally in small-caps.

All of the key sectors finished today’s session in the green, and even though cyclical issues sold off following a bullish open, the afternoon ramp favored “risk-on” stocks. The most lockdown-sensitive issues were buoyed by the upbeat stimulus rumors, which also supported materials, industrials, financials, and the energy sector. The healthcare sector, tech stocks, and especially “stay-at-home” issues lagged behind, even as Apple’s massive rally propped up the otherwise relatively weaker Nasdaq.

We got another confirmation today that the “golden era” for the giants of the tech sector might be over, at least as far as the global regulatory environment is concerned. Facebook (FB, +0.5%), among others, is already facing serious antitrust lawsuits in the U.S., and the European Union (EU) just announced rather strict measures to curb the dominance of the leaders of the sector. The rules are designed to promote tech players, but, long-term they could limit the growth of behemoths such as Facebook, Google (GOOG, +0.4%), Apple, Microsoft (MSFT, -0.1%), and Amazon (AMZN, +0.3%).

Fed's Monetary Meeting To Conclude Tomorrow

The Fed’s last monetary meeting of 2020 will conclude tomorrow and with the negotiations concerning another fiscal package are still ongoing, the Central Bank could once again ramp up its monetary efforts. Last week, the European Central Bank (ECB) expanded its asset purchase program both in size and time, and could give investors a hint of what to expect from the Fed. Some FOMC members expressed their concerns about asset bubbles last month, but since the COVID-19 outbreaks continue to rage in the U.S. the Fed is more likely to remain active even considering the vaccine-related optimism.

We will have a very busy Wednesday of economic releases even without the Fed’s afternoon announcements, and the focus will be on the Markit manufacturing and services PMIs and retail sales. The U.S. PMIs remained encouragingly high in November, especially with the upward revision of the services measure in mind, and analysts only expect a small impact from the current wave of outbreaks. The Eurozone PMIs will also be out tomorrow before the bell, while the NAHB Housing Market Index and crude oil inventories are scheduled for the morning session.

Apple's Shares Hit A Three-Month High

Apple has been trading in a relatively low-volatility consolidation pattern ever since the first days of September, but today, the shares of the most valuable public company broke out to a three-month high. The firm’s iPhone announcement, which might confirm the “5G upgrade cycle” theory was the catalyst behind the move, and adding the positive reception of the new Apple Silicon Macbooks, the stock could be starting another bull run. Given the sheer size of Apple, a new all-time high in its shares would alone provide considerable tailwinds for the large-cap benchmarks.

While price among small-caps turned choppy as the major indices pulled back recently, the Russell 2000 (IWM, +2.6%) remained very strong from a technical perspective thanks to the improving economic outlook. Today's stimulus developments helped the index to another all-time high in the face of the overbought momentum readings, and last month's long-term technical breakout looks safe. While there will certainly be corrections on the way, small-caps could shine throughout 2021, and outperform their large-cap peers. Stay tuned!

Headlines

• Stocks finished broadly higher thanks to the renewed stimulus hopes, which triggered a short-covering rally ahead of tomorrow’s Fed meeting
• The FDA will likely soon approve Moderna’s (MRNA, -5.1%) vaccine candidate as well following today’s positive reports
• Apple (AAPL, +5.0%) announced that it will increase its iPhone production by up to 30% next year, giving a huge boost to the stock
• The seven-day average of new COVID cases, hospitalizations, and deaths all continue to rise to new highs in the U.S. amid the rollout of Pfizer’s (PFE, -1.3%) vaccine
• The giants of the tech sector will be facing new anti-trust rules in Europe, as the regulatory scrutiny is intensifying globally

Market Wrap

Advancing issues outnumbered decliners by a 5-to-1 ratio on the NYSE today, with 93 stocks hitting new 52-week highs and only 2 stocks hitting new 52-week lows, while volume was well below average.

Price Action Gauge ******** (reading for 12/15: 70)

Although today’s rally doesn’t mean that the consolidation is over on Wall Street, the underlying strength behind the move was impressive, once again confirming the healthy long-term trends.

Oversold/Overbought Gauge ******** (reading for 12/15: 26 Color: green)

The most reliable momentum measures remain in overbought territory following today’s broad-based advance, which suggests that the second half of the month could still provide surprises both for bulls and bears.