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Apple: It's Not About the Earnings!

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Yes, I told you that the light goes up and down.
Don’t you notice how the wheel goes round?

-Badge (Cream)

Every bull market has its ‘badge’, a stock that captures the imagination of the vast majority of market participants. Eventually, the fascination surrounding this badge stock leads to euphoria, where eventually the stock price and the company and their products become indistinguishable.

Part of Steve Jobs' brilliance was that he recognized that cool sells. Sexy products sell. Jobs also went against the grain as while most retailers became obsessed with the Internet, he started a brick and mortar operation.  Ultimately, the consumer is a social animal and crowded Apple (NASDAQ:AAPL) stores offered a perfect viral arena for the sheer beauty of their products. Going to an Apple store became a near-cult experience.

Jobs also recognized that service in these retail outlets was the hallmark of success.

Cool sells. Sex sells. Apple tapped into both.

But when everyone you know has an iPhone and an iPad, the cool can rub off quickly.

I can’t help wonder with AAPL’s stock crashing, if suddenly those standing-room only Apple temples will have believers -- many of whom are owners of Apple stock -- pondering if they’re the ones being sacrificed at the altar.

Some months ago, I suggested that more money could be lost in Apple on the way down than was ever made on the way up, the reason being that love affairs usually leaves one coming back for more. If you liked Apple at 650, you love it at 550.

At 450, you discover the object of your affection ‘in flagrante delicto’.

It’s not about the earnings. There is zero correlation between a stock's performance and its earnings in any one-year period. Over the long haul, yes, but not in any given year.

It’s about being over-owned and under-owned -- that quaint concept of supply and demand. That old familiar free market concept is what drives stock price: more buyers than sellers, more sellers than buyers.

A stock is either under accumulation or under distribution, or going sideways, having reached equilibrium.

This is the backbone of the perversity of Mr. Market, whose job at the end of the day is to hurt the most people. Mr. Market’s just doing his job, just like the Bear must ultimately do his job: the vast majority cannot side-step a bear market because it’s the job of the Bear to wring out the excesses and clean the slate.

At the bottom in 2009, the values present by several measures such as book value were not what they were at the bottoms in 1974 or 1982.

I think the likelihood is that this is going to happen. That means the odds are that there is a 3rd leg down in this apparent diamond pattern that began in 2000 -- a pattern that echoes what we saw in the 1970’s.

We should be near the false breakout top that occurred in January 1973 analogue, which was roughly 6 years from the Go-Go Top that occurred in 1966.

We are in the 6th year from the 2007 top.

One of the big bricks in the current wall of worry may be that  the markets were able to shrug off its badge, Apple, and advance despite the rust and the red in the icon.

Can one apple ruin the whole bunch that is the S&P 500  (INDEXSP:.INX)?

Following a failure from the 200 dma, we noted that Apple may have put in a quite bearish ‘droop’ right shoulder.

Whether the 500 level turned out to be a Neckline or a base was pure speculation which came down to the wire on yesterday’s earning’s report.

The promise of the Undercut/Reversal pattern from last week failed to deliver following last night’s report.

Apple plunged to 460-ish, closing at around 464.

464/465 is opposite the 705 high. It represents a 900-degree decline (2 cycles of 360 degrees + 180).

Is this a near-term capitulation?

It looked like last week's undercut and stab back up through 500 may have been capitulation.

Unless the Neckline around 502 to 509 is recaptured, Apple remains in a weak position.

Bearishly, the 3-Month Chart turned down in December and it has failed to define a low. Until the Weekly Swing Chart turns up, followed by constructive price action, ultimately, Apple may have a date with destiny in the low 300’s. I don’t know when that ultimately will happen, nor does anyone else -- any more than those who put $1000 price tags on Apple have any idea of the timeframe even though they led you to believe it was right around the orchard.

Even with Google (NASDAQ:GOOG) and IBM (NYSE:IBM) up big following their reports, the S&P had difficulty getting above the outer edge of our target window of 1488-1494. It closed at 1494.80.

As you know, this week lines up in my work. Unless there is a big momentum move above 1500, caution is warranted. A plunge to 1460-ish could play out at any time, then we’ll get to see what a return rally test looks like.

There are projections to as high as 1550 or even 1600 as you know, but if that’s going to play out, I think those are mid-February numbers in the first case or March in the later.

Yesterday we sent a chart of the Dow Transports ETF (NYSE:IYT).

The Nasdaq (INDEXNASDAQ:.IXIC) also shows a potential topping formation. Remember, when there are many indices giving indications of a turning point or top, the weight of evidence suggests a defensive posture. Often that is difficult to adhere to because usually (not always), the last runs are where the strongest gains are in the shortest amount of time: buying climaxes.

A weekly Nasdaq chart shows a possible Head & Shoulders top with a potential right shoulder that ties to the time of the late January/early February breakout pivot from 1 year ago (1 year cycle).

3D Systems (NYSE:DDD) may be a good example of this pattern---at least in the near-term.

Yesterday, we sent out several alerts regarding the action in DDD so it will be interesting to see how things play out.

Conclusion. The significance of the November low, flagged in this space, is apparent in global markets. Note the breakout in the Nikkei market at that time.

However, after a huge run, the Nikkei shows a little Megaphone Top, which implies a pullback. If prior highs fail to hold, this may be a signal that the big cycles we are looking at, due to exert their downside influence, are playing out.

Strategy. Some kind of top is due here, even if higher prices are to play out. A short-term spike looks like a better sell than a buy going into the weekend.

Editor's Note: This report is a free edition of Jeff Cooper's Daily Market Report. For a two-week FREE trial of his daily commentary and nightly day and swing trading picks, click here.

POSITION:  No positions in stocks mentioned.