Tuesday, June 2, 2009
(Cont'd from above)...

Jim (cont'd):   


Jim:       That is the kind of question that the technicians, the people who look at the charts who try to divine what the action will look like in the future… that is what they are always trying to answer… frankly, we can’t read their poker faces… like the mutual fund manager, we have learned more from Lady Ga-Ga her on Mad Money, then we have learned from the… but a good technician can make a powerful educated guess about what the big boys like and where they like it… by examining their footprints… seeing where they bought and sold in the past… and even though I am a fundamentalist, the kind who reads security analysis by Benjamin Graham, not “Sinners In The Hands of An Angry God” by Jonathan Edwards… someone who likes to base his decisions about stocks on the strength of the underlying companies… I recognize that no matter how much the technicians and the technicals may seem like voodoo… in the hands of someone who knows what they are doing… they can help us figure out how much higher the tech, the tech portion of the stock of where it can go… or where they stall out… or at least have to take a breather.

That is why we are going off of the charts to look at The Nasdaq 100, the NDX… holy cow, the hottest thing in the hottest market… where Dan Fitzpatrick, one of our go to technicians, who is also my colleague at RealMoney.com, the paid side of TheStreet.com where I am chairman… and a frequent guest, fabulous just yesterday on “Fast Money”… I think that he can figure out just how big the next leg of this rally will be… using something called, and every week I introduce new terms that I do not know, this one is called measured moves… what is this latest piece of technical mumbo jumbo, chicken gumbo… for once, it is actually pretty straight forward… technicians literally just measure the size of the last move… so if there was a rally, they just measure how big the rally was… and then assume that after the stock pulls back, or the market pulls back, its next rally will be the same size as the last one… which allows them to come up with a price target.

I know that it is simple… but I did not think like this… not until I talked to Dan… the idea here is that buyers will only chase the stock so much before they back away… and this is how technicians quantify that behavior… mutual fund managers as lab rats… why not… Fitzpatrick does not measure from the bottom to the top though… he measures a move from the point where the stock broke out from the prior resistance to the top… resistance is another piece of technical jargon for a stocks ceiling… the level where it stops going higher, where it is contained… when a stock goes above that level, it is like an alarm going off giving chartists an all clear signal to start buying… fundamentalists like to buy when it is going up… but these guys do not like to buy until it is like moved up a lot… but that is okay.

Why start measuring at old resistance level rather than at the bottom… because that more closely resembles the mind set of the big boys… that is what they do… the idea of being that you are measuring how much fire power they can bring the bear once they see the break out happening… they see the break out, they want in… using this technique, Fitzpatrick thinks that the NDX will advance from 1584, up 7% from where it is now, before the bulls need another pit stop to refuel… he got that figure by measuring the size of the last big move… and then adding it on top of the price where the current move break out started… not the bottom, okay… but the old resistance level of 1435, you got that… so it started right where it peaked last time… that is where the NDX broke thru yesterday.

The initial resistance line back in January and February was back at 1286... this is where it kept bouncing off of from the ceiling… and it was ultimately broke in early April… that is when the move really began… see, I would have liked to be bullish right here… the technicians missed this part, they do not get interested until here… but there is still plenty to gain… from there to its peak at 1435, the NDX gained a 149 points… and then it went into what is called a resting phase… you know, those are Z’s… where the stock traded sideways… with resistance at 1435... okay, resistance… now that it has broken out above that level, Fitzpatrick assumes that it will have about as much fire power this time around… which means 149 point rally… from 1435, it takes the NDX to 1584... believe me, you really want to be in this rally… this is just a fantastic rally… and by the way, I believe that it will occur… you have got another 104 points of upside before the bulls go back into the Z thing...

So, we have got a technician that thinks that The Nasdaq 100 is where the action is… another 7% to go before taking a breather… does that mean that it is time to buy the QQQ, which is the ETF that tracks the index… no… that is what he might want… I think that it is the wrong move… based on the fundamentals, I think that Fitzpatrick is right to believe that we still have got plenty of upside… but I am not playing with any ETF… you can always do better than the ETF… why would you buy the QQQ and end up being exposed to a lot of stocks that you do not care for… when you can look for the best stock in the index and glum onto that one… I think that it is a no brainer… and in this case, the best stock is… Apple Inc. (AAPL).

And the best case that I have seen for Apple in this whole run… actually one of the greatest pieces of research and I denigrate research analyst all the time, is one by a woman, I have never met her, I have no friends on this show… Kathyrn Huberty, she made it last week when she upgraded from hold to buy, this is a must read piece of research… she slapped $180 price target on it… based on the believe that Mobil Internet is the biggest thing to hit the tech market in years… and Apple’s dominance of it thru the iPhone makes it the clear winner… how big… tech has been devoid of a major product cycle since the introduction of the web… with the non nuclear proliferation of mobile internet devices like smart phones… Huberty thinks this represents an opportunity 40 times the size of the original move of the internet… 40 times… with Apple leading the way… part of the reason she believes the iPhone will make up half of Apple’s business by 2012... that would be remarkable.

And her earnings forecast is 20% higher than everybody else… that is a radical move… as someone who has traded for 30 years, to see some analyst come out 20% above everybody else… I am telling you, that is radical… Huberty also thinks big price cuts could be coming to the current iPhone models next week… so you do not have much time to wait here… as that announcement will be a gigantic catalyst for stocks… without, she believes that there could be a pause though… so we have to monitor the price cuts issue closely… plus, now there are so many applications for the iPhone, with more and more apps being sold and developed every day, the product has become even more enticing than anybody thought it could be.

You have got to read the trade papers sometimes… there is a great piece in Ad Age, of all places, yesterday… about how all of the pharmaceutical marketers and health care professionals are drooling over the applications that Apple are coming up with for medical and health reasons on the iPhone… it is a genius machine, and everyone wants one… on top of the iPhone, there are also new iterations of the iPod, including a new touch coming… do not be fooled… if you think the market for these things is saturated… iPod’s are not music players… they are fashion accessories… my daughter’s each have three of them… I kid you not.

And finally, Apple goes to China next week… China… and they are going to love it… you might want to sell something in the action next week, if you get a real spurt up… the company is releasing its new products June 8Th and June 9th… and if the iPhone gets the price cuts that Huberty expects… well, I have got to tell you… it will be then that you will get a nice spurt… I suspect then we will see a sell off… and then the stock will refuel, hopefully with you on board… I do not want you to sell anything more than a quarter of your position… because I think the stock is going much higher… I agree with her $180 price target.

Apple has $29B in cash… trades at 17 times next years earnings… 12 times 2011 earnings… that is ridiculously cheap… you cannot afford not to own Apple… that will be the mantra going into the quarter.

Here is the bottom line…

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