Russia vs. Apple: How To Monitor The Battle

By: Chris Ciovacco | Thu, Apr 24, 2014
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Apple: The Good News

Russian military exercies offset Apple euphoria early Thursday

Apple, one of the darlings of the current bull market, delivered on the earnings, share repurchase, and split fronts after the close Wednesday. From CNN:

Apple said it will increase its share repurchase program to $130 billion, up from $100 billion. The company also announced an 8% dividend increase to $3.29 per quarter, up 24 cents from the previous $3.05. Apple also announced a seven-to-one stock split, which will take effect on June 9. That would make the price of a single share of Apple significantly cheaper, paving the way for the company to possibly be included in the benchmark Dow Jones industrial average. Apple also handily beat Wall Street's profit and sales estimates for the past quarter.

Investors love stock splits, which was evident in Apple's 8% pop higher in Thursday's session.

AAPL Apple, Inc


Russia: The Bad News

Financial markets hate uncertainty. Loose cannon Vladimir Putin is a source of great uncertainty. As shown in the chart of Thursday's session below, stocks made an about face around 9:40 am EDT.

$SPX S&P 500 Large Cap Index INDX

Russia-Ukraine is a story that remains on the market's radar. From The Wall Street Journal:

Russia said it launched military exercises along the Ukrainian border on Thursday after Ukrainian forces killed pro-Russian militants and overran three roadblocks outside the eastern city of Slovyansk, in part of a renewed military operation to regain control. Russia's Defense Minister Sergei Shoigu said exercises involving land and air forces along the border had already begun. Russia has had tens of thousands of troops massed along the border since last month and has threatened to intervene in Ukraine's eastern region if it felt ethnic Russians there were under threat. Referring to the situation in Ukraine, he said that "if this military machine isn't stopped today, it will lead to a greater number of dead and wounded."


Investment Implications - Establishing Guideposts

The Dow has been consolidating for almost four months now, which tells us investor doubts about the economy relative to stock valuations have been increasing. All things being equal, the bulls will improve their odds of success if they can push the Dow to a new closing high. The fundamental rationale behind the importance of new highs was covered on April 4.

$INDU Dow Jones Industrial Average INDX

If you prefer to establish reference points for the S&P 500, as long as price remains above the colored moving averages and the slopes of the moving averages are positive (bullish), then the odds of a correction taking hold are lower in the intermediate-term. The look near A below (gains followed) is similar to the current look near B. Remember, we think in probabilities, not certainties, which applies to these guideposts.

$SPX S&P 500 Large Cap Index INDX

As noted April 23, it is unlikely the Fed will remove the stimulative winds from behind the market's back, which gives the bullish case an automatic one-up on the bearish case. The big picture remains constructive for equities, but continues to have some lingering doubts on a shorter time horizon. Therefore, we remain comfortable with a bias towards stocks (VTI) coupled with an complimentary and offsetting exposure to fixed income (TLT). The markets and incoming data will provide ongoing guidance along with the levels and concepts outlined above.

 


 

Chris Ciovacco

Author: Chris Ciovacco

Chris Ciovacco
Ciovacco Capital Management

Chris Ciovacco

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE.

Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

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