Apple looks ready to plunge into the abyss. If you're a regular reader of Smoking Securities, you know I think AAPL is a dog. $27 cash is great, but using using a low estimate of 4.66 EPS next year, a 10 PE makes this a $74 stock. Don't be an emotional investor attached to a brand.
Five days ago I posted about the dangers of BAC
here. The message of the market is clear, this is not a place for long term investment. Any purchase of BAC stock is a speculative short term bet that takes advantage of volatility, not improving fundamentals.
Although I expected Citigroup to print a 3 handle, I didn't think it would be in the 2.80 range so quickly. This beast remains a destroyer of long term equity, and should be treated like BAC. Investors relying on TARP banks to pay dividends are playing a dangerous game.
My last mention of FAZ was
here, and so far the trade is moving in the predicted direction. The uptrend in FAZ is relatively new, so further deterioration in the financial sector seems likely considering how much room this has to run. Nevertheless, keep your position size up to date because the increasing daily movement will easily shake out emotional bets.
State Street is another toxic financial that should be treated with caution. A sharp rally into resistance will occur, but there is no sign of reversal as the trend remains lower.
Keep your Benjamins close. The market continues to exhibit risk aversion and volatility. This environment requires keen position size adjustment as the daily swings continue to grow. Small bets can reap huge rewards because the tape is relatively noisy. Moreover, poor capital allocation leads to emotional trading habits that increase the risk of ruin when luck goes bad.
IMHO, the collapse of BAC, BCS and UBS threatens the viability of ETFs and ETNs like SKF and OIL. Swap agreements and debt have credit risks that may appear overnight, though some argue that is possible for the USD. Beware potential liquidity issues for leveraged products that adversely alter the tracking of the underlying index if counter party uncertainties arise.
