Major markets were little changed on Monday, although the NASDAQ Composite Index suffered a distribution day as a result of Apple's (AAPL) decline. Federal Reserve Board Chairman Ben Bernanke downplayed fears expressed by some more hawkish Fed officials that the Fed's bond-buying program will lead to higher inflation. "I don't believe significant inflation is going to be the result of any of this," Bernanke said. Whether Fed policy with respect to quantitative easing will lead to asset bubbles in the future is "a difficult question," Bernanke said. The Fed is monitoring markets for any signs of financial instability. Bernanke would rather err of the side of keeping rates low because the worst thing for the Fed to do would be "to raise interest rates prematurely," he said. In our view the Fed has already created a de facto bubble in asset prices, and it is simply a matter of how much bigger the bubble gets before it pops. While the Fed claims to have the "tools" to unwind what is far and away the most massive monetary stimulus in the history of the planet in an orderly manner, it will be an interesting potential spectacle to see exactly how this works in practice, assuming the markets don't do it for them first. While the Fed Chairman remains in denial regarding the effects of money-printing on the value of the dollar and the inflationary effects it has already produced, consumers know that inflation can be readily observed in a variety of areas, such as your friendly neighborhood grocery store. Meanwhile, the only way to know whether the bubble keeps growing or finally comes under pressure is to watch the market, and so far the market has remained in an uptrend.
Bernanke's comments appear to have put a bid under gold and silver, which are both rallying this morning pre-open. Additional fuel may be added to the move in the precious metals if and when the debt ceiling is ultimately raised, and this issue is now coming to a head as Treasury Secretary Timothy Geithner yesterday stated that the debt ceiling would be reached between mid-February and early March unless Congress acted to raise it. Our view has been that ultimately silver and gold should break out and rally again, as we see no end to the U.S. government's "print-and-spend" financing scheme. However, we still await bona fide buy signals in either of the precious metals at this time, but we remain alert for any forthcoming signals.
Apple (AAPL) has gapped down Monday on heavy volume allegedly on reports that iPhone 5 displays orders have been cut in half on the basis of weak demand. While the news might be considered "new," the fact is that AAPL's relative weakness in in this market is an established technical fact, and we prefer to look at this from a technical perspective. Thus our view is that yesterday's move was essentially as a shortable gap-down move using the intra-day high of yesterday at 507.5 as a quick upside stop. One could take a smaller, partial position on this basis and then seek to add if the stock breaks the neckline at around 500. Of course, this all depends on a resolution to the current technical scenario in AAPL occurring prior to earnings, otherwise both shorts and longs in AAPL will be playing a game of "earnings roulette" next Tuesday when AAPL announces.
There were no significant new pocket pivots or breakouts yesterday as most leading stocks have already done so, and it is now a matter of seeing how far this rally carries and whether material progress can be made.