The Resignation Heard 'Round the World
The market rose again yesterday in somewhat of a rocky session, but a gain nonetheless. Volume was once again high as the market recaptured 1155 support and challenged 1175 resistance.
Today we find out just how real the bulls are; because buyers will be up against 1175 resistance and have to overcome the news from Apple yesterday. The 1175 area was a strong support zone last fall and prevented the bears from taking stocks lower in November as troubles brewed across the pond in Europe.
The 1175 support level was not tested again until this month, and if the bulls are not careful 1175 could turn into a strong resistance zone.
In the near term I would expect the market to pull back as it hits 1175, but eventually it should mosey its way higher and up to 1197 resistance.
The other challenge that the market will face today is "The Resignation Heard 'Round the World" (and I want rights to that phrase) Yesterday afternoon Apple reported that its founder and CEO Steve Jobs will resign and is set to be replaced by Tim Cook. Unfortunately, Steve Jobs has a known history of health problems, and now he is gone as Apple's CEO.
The investment world knew this day would come for Apple. The initial reaction will be to sell the stock, but Apple is a strong company and hopefully there will be a crowd of people that realize that Apple will continue to be a great company.
But there is more at stake than just a decline in Apple shares. Since Apple is almost 15% of the Nasdaq100, a big price move in shares will weigh down the index. As the index moves lower it could cause those invested in index etfs like QQQ to sell. And as people sell QQQ, it may cause a decline in QQQ's component stocks.
Also, from a fundamental perspective, if investors believe that Apple will be less of a company, suppliers to Apple will see their share prices decline heavily.
The bulls will be put to the test today. Buyers will go up against a strong resistance zone and also may have to fend off a large decline from the $350 billion technology beast which is the second largest stock in the U.S. exchanges (XOM is slightly bigger) and the largest on the Nasdaq. I do not expect the market to increase today, but the bulls can prevent a major rout if they can keep their head above 1155.
The bulls will have some aide today from Asia where almost every exchange was green, except for India. China and the Shanghai Composite led the charge and posted a 2% gain. The European market also trades green, but those indices have fallen from the highs of the day. Oil is also up, and gold, which declined $200 this week, is staging a mild recovery.
Now that the market made the big move higher we were looking for it to do, let's plan to see consolidation above 1131 or 1155 before a run towards 1197. Additionally the low on SPX of 1122 needs to be held. I think that price is the most important support area to watch in the short term because if SPX moves below it, the index is likely going to 1050. Conversely, if SPX can stay above yesterday's low there is a great chance of 1200 again, probably 1235.
