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Same Story, Different Year: Bonds Scream, Europe Wails, and Apple Torments All


A firsthand account of the Italian economy, thoughts on sovereign spreads, and a technical analysis of where Apple stands.

Happy New Year, Minyanville readers! I'm back from ten days of eating around Italy to report that, unfortunately, the economic problems that just six months ago (when I visited last) seemed confined mostly to the government, have now filtered down to the real economy. The new "IMU" tax, which is the jacked up property tax that now covers all real property holdings (primary residences were previously exempt), has gutted a very significant portion of Italy's disposal income.

How bad are things? I walked into a clothing store in the center of Rome and before I could open my mouth, the clerk welcomed me by saying, "Hello, how can I help you?" I responded to her in Italian and asked her why she welcomed me in English. Her answer was cold: "Because the only people spending money these days are tourists." Also overheard in a high-end women's clothing store, this comment by a mink-fur-wearing 50-something to a clerk with whom she was on a first name base: "Dear, I'm here for my shopping spree; gone are the days of shopping whenever I feel like it."

And if there was any doubt that higher taxes are having a deflationary impact on prices, everything from food, to restaurant meals, to clothes was meaningfully cheaper than six months ago, even allowing for New Year special deals. (As a side note, I did not know that stores can only offer "sale prices" during specific periods specified by regional and local governments -- so called "normative sui saldi" – how is that for free markets?)

I won't dive into the euro "crisis" thing because Lord knows that horse continues to be beaten to a pulp. But suffice to say, Italy at least – and it's the best of the bunch – certainly does not feel on the mend. And the political posturing for the coming elections is rather clear cut: On one side, there are those pushing to abandon austerity measures, Germany be damned, and on the other, there are those hoping to re-enlist Monti to continue his work to dig the Italian government – not to be confused with the Italian people – out of its fiscal hole. Pick your poison.

That said, don't tell sovereign spreads that there are problems out there. I fired up the Bloomberg to find Italian CDS down 50bps (25%), spreads to bunds down 30bps, Spanish CDS down 30bps, and spreads to bunds down 35 bps, all this since New Year.

Back to the US, I keep looking for something to suggest that the fiscal cliff "deal" was more than the two sides accomplishing absolutely nothing besides standing behind the podium to declare victory. I'm not holding my breath. But just as it made no difference last year, it's made no difference so far this year for corporate buyers who sucked down $13.5 billion in new issues Thursday alone.

In equities, I'll post on Buzz & Banter (subscription required) over the next few days about where my biggest positions stand, both in terms of fundies and charts. The elephant in the tech room, of course, remains Apple (NASDAQ:AAPL). It reports earnings on January 23 and estimate revisions in the past week are solidly slanted to the downside. My gut – a rather large one at that these days – agrees. But at around $500, it's tough to tell how much of a miss is already priced in. Daily DeMark indicators still point to at least a visit to $494.93 (TD Prop Exh. Down), especially if the current TD Sell Setup cancels today with a close below $532.17. On the weekly chart, the count following the qualified break of TDST Level Down remains on number 5 of a Buy Setup, meaning that there is a long, long way to go if completion of a Countdown 13 Buy is to materialize.

The wild card, of course, remains AAPL's cash stash and/or its ability to tap the bond market for a massive buyback that would give bears the medieval treatment. I remain long AAPL stock and puts as well as short Nasdaq 100 (INDEXNASDAQ:NDX) futures, the latter carrying a 15.7% AAPL weighting as well as a 7.1% share of the market anvil known as Microsoft (NASDAQ:MSFT).

Editor's Note: At Minyanville, we often argue that markets and stocks are driven by four primary attributes: the fundamentals, the technicals, the structural, and psychology. In this weekly piece, trader Fil Zucchi will attempt to digest these four measures to come to actionable recommendations, but with a couple of twists: Rather than relying on standard technical analysis, he will examine the technicals through the lenses of "DeMark" indicators. And rather than highlighting straight entry and exit points for stocks, he will use options to gain long / short exposure, control risk, and generate cash flow. Investors should note: This column will be written 1-2 days prior to publication, so by the time it appears the prices of the securities mentioned may have changed.
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Position in AAPL, NDX futures.
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