With the dollar rallying and stock trading sideways, today one of the greats in the business sent King World News a fantastic piece discussing the Apple nightmare, gold, silver, plus a bonus Q&A that covers the end of the Fed fantasy, precious metals, miners and much more.
August 4 (King World News) – China was green last night to the tune of 3.5% or more, Europe was sideways, and the early going here saw the indices trading sideways as well, with modest weakness in the Nasdaq. However, beneath the surface, it was a bloodbath in tech….
Continue reading the Bill Fleckenstein piece below…
The Apple Nightmare
Apple led the charge lower, losing 4% through midday, and taking most everything with it, not the least of which being the group that Fred Hickey calls the "Apple dumplings," namely, Avago, Skyworks, NXP Semiconductors, and Cirrus Logic.
I should point out that the weakness early on didn't really affect the supposed "New Economy" type of tech stocks, such as Tesla, Netflix, or LinkedIn, etc., it was mostly older school companies and chips that were really thumped. Nevertheless, as I noted yesterday, I think the recent action in Apple is incredibly important. Apple was not an extraordinarily expensive stock if you just looked at the P/E, although having to create recurring revenues of the size they do with a lot of discretionary products is not easy. But in the minds of most people Apple was cheap, it has a huge buyback underway, ought to be very liquid, was definitely quite popular, and it made the numbers. So — for those who don't look beneath surface — why would it decline? The answer is the units weren't quite what were forecast, which was what started the weakness.
I think this is a perfect example of the brittleness of the market and why I have thought it is crash-prone, as I have often noted. I also happen to believe that the action in Apple is exactly what we could see in the S&P one of these days when it trades through the 200-day moving average. As I wrote yesterday, I'm not a huge believer in moving averages — I use them as a guide — but I think a lot of computerized trading and momentum types, which this market is full of, are strongly influenced by them. Thus, I think we could see a vapor lock to the downside in the entire tape, just as we've seen in Apple. Granted, this is just a thesis, and we'll have to see if it is corroborated, but I think it definitely has a good chance to play out the way I anticipate.
Not Yet Spoiling the Whole Bunch
Contrary to my expectations, the Apple weakness was largely ignored by the rest of the market and the indices basically just flat-lined sort of sideways all day, with small losses. Away from stocks, green paper was flattish, oil gained 1%, fixed income was lower, and the metals were flat.
Perhaps the nonfarm payroll report will be the spark that turns the metals market to the upside, but what should be noted is that if the stock market follows Apple lower, we will soon be very close to the moment when folks realize that the central bank's policies don't work, and the psychology will begin to change for the metals. I believe that is getting nearer by the day, though it obviously has not yet begun.
King World News
In my latest interview with Eric King we get to go a little more in depth on a lot of the usual suspects, such as the metals, the Fed, and the implications for the stock market overall. Interested readers can listen to it here.
Included below are three questions and answers from today's Q&A with Bill Fleckenstein. The questions are from his subscribers and they get to read Fleckenstein's answers every day.
Question: Bill: I know you been saying for months that the hatred for the miners is something you never seen, but it just keeps getting worse and worse. What the heck is going on?
Answer from Fleck: "It is just feeding on itself, it may be the nature of the market nowadays with so many quants etc. I've never seen anything like it."
The Long-Term $1,050 Target
Question: Hi Bill…May be unanswerable. I have felt for a long time that a floor in the dollar price of gold is $1,050. My reasoning was that in Nov. 2009 the Central Bank of India stepped up to the plate and bought 200 tons of the 400 tons that the IMF offered for sale at $1,050. That was last time gold was offered under the Washington Agreement if memory serves.
So if the central banks scooped up gold at $1,050 in the past, acting in their own self interests, what has changed in the past nearly six years? Why wouldn't they again swoop down and gobble up any available physical anytime now?
Answer from Fleck: "$1050 is also the target for Goldman Sachs mega bear Jeff Currie (who got this trade right, though for many of the wrong reasons). Will that matter? Will it even get there?
I don't know…but just because central banks acted last time doesn't mean they will again. Still, the downside has been so thoroughly discussed and the market is so depressed and hated that this decline could be over at any time. We just won't know for a while."
Downside Has Washed Itselft Out As Fed Fantasy Comes To An End
Question: Bill, at this point, where do you see commodities besides precious metals going over the next several months? Do you think they will continue to move lower? And if you do think that, does that give you any pause about the precious metals in that time frame? Thanks very much.
Answer from Fleck: "I don't have a strong view as I don't know the details of the various commodities, but I think the downside has washed itself out pretty well at a moment in time when the fantasy case for the Fed is very tenuous." ***To subscribe to Bill Fleckenstein's fascinating Daily Thoughts CLICK HERE.
***ALSO JUST RELEASED: Plunge Protection Team Now Working Overtime To Hold Off The Inevitable Collapse CLICK HERE.
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