MorningWord 5/30/13: Have You Tried Staples?? $XLP, $AAPL

by Dan May 30, 2013 9:18 am • Commentary

Enis had a great write up this morning in his MacroWrap (read here) about the new leadership sector in the S&P, yes the dreaded financials as measured by the XLF etf.  Enis notes that given this weeks strong relative performance to sectors like Healthcare (XLV) & Consumer Staples (XLP), the XLF is now the best performing sector…..who would have thunk it after a year that has seen declining trading volumes, m&a activity, massive impending regulation, whales in London and the IPO of FB.  Yesterday’s performance of the XLF (flat on the day) vs XLU -1.5%, XLV -1.5%, XLP -1.9%, IYR -2% and XHB -2.3% is nothing short of impressive and demonstrates the continued theme of sector rotation into more cyclical sub-sectors of the S&P.

Despite the SPX doing what it does (rally off lows), there was considerable technical damage done in some of the prior leaders that was masked by the afternoon recovery.  Even as the SPX closed 1/2 % off of the morning lows, the XLP barely saw an uptick in the afternoon closing 16 bps off the lows.  The XLP is down almost 3% from Tuesday’s highs which could have marked a significant near term top as the sector failed to make a new high and reversed on volume yesterday that marked the second biggest fay in more than a year.  Two other quick technical points demonstrated by the 1 yr chart below, yesterday’s breakdown is the first break below the uptrend that has been intact since the Nov 2012 lows and the distance btwn the price and its 200 day moving avg (more than 12% as of yesterdays open) was the widest distance in more than 2 years.  To say staples were due for a pullback is an understatement, having little to do with the increasingly stretched valuations of its top 5 holdings (PG, KO, MO, WMT & CVS) that make up almost 45% of the entire etf.

XLP 1 Yr from Bloomberg
XLP 1 Yr from Bloomberg


In sum, despite what many see as a positive rotation into cyclicals like Banks, the technical damaged done in some prior leaders like XLP & XLU should not be overlooked at a time when one of the largest equity markets in the world (Nikkei) is moving around 5% a day, the yield on the 10 year treasury just had its quickest assent  in ages, commodities and currencies are bouncing around like kickball’s and the VIX is still well below its historical average, showing little signs of panic.  Something has to give and soon IMO.

All this Staples talk reminded me of one of my favorite quotes from an unsung 1980s comedy Scrooged starring Bill Murray, have a listen:

On a single stock note, yesterday in this space (below) I had a few choice words for AAPL CEO Tom Cook, but I think it is important to note that some technicians are seeing a potential bottom in place.  Yesterday on CNBC’s Talking Numbers segment, Enis and his counterpart discussed just this:

And Bloomberg’s Chief Market Technician, Greg Bender had an interesting chart showing as Ross described above the potential Reverse Head and Shoulders Bottom forming, with the stock quickly approaching the neckline.

AAPL 1 Yr Chart from Bloomberg's Greg Bender
AAPL 1 Yr Chart from Bloomberg’s Greg Bender

While my commentary was decidedly negative, I am fairly neutral on the stock as I strongly believe their massive stock repurchase plan and their dividend yield of 2.75% should help stabilize the stock despite what I believe is a very poor fundamental position (for the moment).




MorningWord 5/29/13: Tim Cook Is Losing – $AAPL

9:22 AM EDT – MAY 29, 2013 BY  (EDIT)

MorningWord 5/29/13:  Watching the video (here) and reading the transcript (here) of AAPL CEO Tim Cook’s interview last night with the WSJ’s Walt Mossberg at the All Things Digital Conference, I can’t help but think that Cook just doesn’t get it.  He is still running plays off of the playbook that worked so well for Steve Jobs and his “reality distortion field”, and for reasons in and out of his control he is failing.  Cook is not Jobs, and despite his break with Jobs prior thinking and the company’s use of cash, Cook appears to be staying the course on the product front and trying to dictate what the consumer should be using, rather than what they will want.  To paraphrase Wayne Gretzky, since the introduction of the iPod more than 10 years ago, AAPL was always skating to where the puck was going to be, not where it’s been. That doesn’t seem to be the case anymore.

Cook’s answers  to Mossberg regarding iPhone size and thoughts about portfolio anger me as a die-hard customer, and insult my intelligence as an investment professional who has followed the AAPL story for more than 15 years.  Excerpt from

Walt: on product strategy. With the iPod, Apple had a range of products, each designed to hit different markets and use cases. In one case, Apple killed off its best-selling iPod mini and introduced the nano. You haven’t done that with the iPhone.

Instead, Apple has covered price points by keeping around older models at lower prices.

Why not do what Apple did with the iPod, and have a range of new products each year?

Cook: We haven’t so far. That doesn’t shut off the future.

As to why not so far, “It takes a lot of really detailed work to do a phone right.”

My only point is these products all served a different person, a different type. On the phone, that is the question. Are we now at a point to serve enough people that we need to do that?

Walt: Let me help you. There seem to be people that like much larger screens. There are people that like “phablets” that are between phones and tablets.

Cook: A large screen today comes with a lot of trade-offs. People do look at the size. They also look at things like do the photos show the proper color. Battery life, brightness, etc.

What our customers want is for us to weigh those and come out with a decision. At this point, we’ve felt the Retina display that we are shipping is overwhelmingly the best.

Cook can keep going off the Jobs script, specifically the lines about knowing what’s best for everyone. But for almost every excuse he has about why they only have one 4g phone or why they have chosen the screen size that they have, Samsung has an answer.  Maybe this is a bit obvious by the price action in the stock, but AAPL is losing, and Tim Cook better move his ass a bit and take some chances, or risk presiding over what could look like the sinking of the Titanic.

The 3 year chart of AAPL (orange line) vs Samsung (white line) fairly adequately sums up how dire the situation is for AAPL as it relates to loss of consumer mind-share.  Back in 2010, AAPL had a smartphone market share lead over Samsung and had just introduced the iPad which would help catapult them to a near dominate position in tablets.  Since then Samsung has routinely introduced products that have had AAPL’s one iPhone and iPad in their sights, but then chose to surround those products with choices for customers of all different demographics in many different geographies, thus giving consumers what they really want, choice.

AAPL vs Samsung 3 yr chart from Bloomberg

AAPL vs Samsung 3 yr chart from Bloomberg

The chart showing Samsung basing near its all time highs, and AAPL still flirting with recent lows speaks to the sentiment of the respective company’s future product offerings.  Samsung investors seem fairly comfortable that they will continue to do what they do, nothing revolutionary but offer a wide range of high quality reasonably priced gadgets (something for everyone), while AAPL investors are left to guess if and when the company can continue to innovate the way they have in the past, and if they will adapt to a quickly evolving consumer.