What’s the Story?

by CC March 15, 2012 9:04 am • Commentary


U.S. stock futures advanced, indicating the Dow Jones Industrial Average will rally for a seventh day, after reports showed a drop in jobless claims and manufacturing in the New York region expanded.

Bank of America Corp. (BAC) and Goldman Sachs Group Inc. (GS) rose at least 0.9 percent to pace gains among financial shares. Apple Inc. (AAPL), the world’s largest technology company, added 1.5 percent after Piper Jaffray Cos. raised its share-price estimate to $718. Advanced Micro Devices Inc. (AMD) gained 2.6 percent after Jefferies & Co. recommended buying the shares of the second- largest maker of processors for personal computers.


Weekly unemployment claims hit a four-year low, suggesting further strengthening in the labor market, while producer prices, boosted by energy costs, rose by their largest margin in five months in February.

Initial claims for state unemployment benefits dropped 14,000 to a seasonally adjusted 351,000, the Labor Department said. That took claims back to a four-year low reached in February.

The prior week’s figure was revised up to 365,000 from the previously reported 362,000. Economists polled by Reuters had forecast claims falling to 356,000 last week.

The four-week moving average for new claims, considered a better measure of labor market trends, was unchanged at 355,750.

First-time applications for jobless benefits have been tucked in a tight range since mid-February, a hopeful sign for the labor market, which has enjoyed three straight months of employment gains above 200,000.


Looking for another reason to be bullish on stocks? Check out the recent action in the U.S. dollar.

The Dow’s six-day streak of gains has been accompanied by an uptick in the greenback, a historically positive correlation that has been nearly absent ever since the stock market recovered from its March 2009 low.

Over the last three years, stocks and the U.S. Dollar Index, which tracks the U.S. currency against a basket of six others, moved in opposite directions. When stocks and other risky assets dropped, investors bid up the dollar as a “safe-haven” play. But during “risk on” scenarios when stocks, commodities and other more volatile asset classes have risen, the dollar has typically been the tough luck loser.

That trend looks poised to end.


The consensus price target for Apple (AAPL) based on all of the analysts that cover the stock currently stands at $605.  With its share price trading north of $590 today, Apple is quickly approaching its price target.

Below is a chart showing the consensus price target for Apple along with its actual share price going back to 2005.  As shown, the huge spike in the stock so far this year has pushed the price very close to its current price target.

Below is a chart showing the percentage spread between Apple’s share price and its consensus price target.  At the moment, the spread stands at just 3.44%.  This is much lower than the average spread of 24.7% that has been seen since 2005.

Whenever the spread has gotten close (or below in one case) to zero, it has typically been an inflection point, and the spread begins to widen out again.  This means that the stock either dips at a faster rate than analysts can lower their price targets, or that analysts begin to up their price targets because their prior targets are being reached.  In the case of Apple, the latter has mostly been the case in recent years.  Are we about to see a bunch of Apple price target increases in the coming weeks?