Apple's Run Poised to Resume

Corporate earnings growth is the single most important long term economic indicator. The stock market moves on earnings, period. In the short run there can be numerous economic variables jockeying for position atop the economic totem pole, but over time the "flavor of the month" will melt away into obscurity if it doesn’t have a profound effect upon corporate earnings growth. Today’s market action is reaffirming this rule. Tech companies Micron (MU) and Red Hat (RHT) both beat expectations, which did a good job of reminding investors that tech should not be sold because of European, Libyan or Japanese turmoil.

What we’re about to witness could be the exact opposite of what we began on February 15th. Back then nobody could come up with any rationale for the market to drop after 61 straight days of a rally. But sure enough the market found plenty of reasons to drop. Now investors find themselves, only one month later, not being able to come up with any rationale for the market to rise. Don’t allow yourself to get sucked into the market’s technical games. The Dow hit a low of 11,548 on March 16th, the next day Apple (AAPL) hit its low of $326. And now six trading days later we are well on our way into recovery mode with the Dow at 12,160 and Apple at $344. The media is still pushing the same old stories about Libya, Europe and Japan. But those will fade away as this rally gains strength. We will once again realize that a tech revolution is happening before our very eyes and that earnings growth is exploding.

I know, I know, you want to tell me that high oil prices are going to derail the recovery. But I would tell you that high oil prices cannot be sustained unless there is real trouble in Saudi Arabia. Saudi citizens made it very clear with their "no show" on the proposed Day of Rage that they have no intention of bringing violence to their Holy Land. Back in 2007 the market did fine with $100/barrel oil. In 2011 the market will get tired of Libya irrelevancy and oil will calm down. Japan’s $300 billion reconstruction effort is the bigger story because it will directly impact corporate earnings as if it were QE3. The oil fear trade will only work when the market is technically overbought.

Do you remember the barrage of negative Apple stories that were being pushed by hedge funds last week? Apparently the barrage did its job and satisfied the hedge funds that the bottom was in. In the absence of such manipulation, today we are seeing a complete change in the sentiment:

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You have to go back more than five years to find a time when Apple stock didn’t rise dramatically between the March low and the April earnings report. Apple is on track to reclaim its prior high of $365 by mid April and depending on the earnings results, it could find its way to $400 in May. We are ready to conclude our economictiming.com buying program by making our final Apple purchase today. We haven't been this heavy in Apple since the August 2010 low. It's running time.

Disclosure: I am long AAPL.