Market Presents Challenges (for Some!)

Have you missed this tremendous bull run? Since Oct 3 the SPX has put on some weight, a robust 330 points (30%) from 1070. Nasdaq has blasted forward past 3K, a number not seen in more than a dozen years.

The Dow Industrials is positioned above 13K now, up a solid 8.3% for the year. Can the run continue? Sure it can – markets run further than anyone believes. There are plenty of doubters too, bears around every corner just waiting for the ‘I told you so’ moment.

That is why we pay attention to the action in front of us and not make unnecessary predictions about this or that. That is just market noise – we ignore it. Just the facts (charts) please!

And Apple! Whoa, that stock has given everyone fits. The bulls can’t believe their good fortune in this incredible run, while the bears have been taken out back and shot – repeatedly.

This past week the stock gapped higher everyday and turned the investing world upside down. Even CNBC stood there in astonishment. On Friday they released their latest version of the iPad.

Jim Cramer/Stephanie Link from actionalertplus talked on CNBC about the insides of the new iPad and picked out names such as Broadcom, Skyworks Solutions and Avago as the biggest beneficiaries. They have been noting (correctly!!) that the upside in Apple is not over – this may not go over well for the bears.

Option volume on Apple this week was amazing – near record dollar volume for one single issue. One other note on Apple: For those who think the stock is over done, too hot and can only go down – there is a ‘future’ catalyst out there (which may trigger some selling eventually).

What is it? Let’s call it a put option on Apple – the dividend everyone hopes/expect the company to pay with all that cash sitting on the balance sheet. I suspect they have exceeded the 100 billion level now, and who wants to be out of the name before that announcement comes? Pure speculation on my part, of course.

Looking to the charts we see markets have broken free from resistance. Stepping back a few years there is some trouble up ahead at 1440 for the SPX (back to May 2008) but that should not be a huge impediment. If sentiment and other tools are very overbought at the time then we could see some selling hit.

What is the danger for the markets on the horizon? Always complacency. There is not much fear that markets can go down – why should there be? Unless there are some unforeseen situations then we are looking at domestic issues: can the economy grow without much inflation, and will the Fed feed more accommodation?

Much has been talked about this lately but in my mind it’s all lip service and jaw-boning. Until the Fed pulls back the punchbowl and sees some inflationary trends in the channel then the monetary conditions for the economy continue. Don’t fight the Fed (in either direction)

Bob Lang is the Senior Market Strategist for options trading newsletter Explosive Options