Short-term opportunities in Apple and gold
Window dressing by fund managers leaves both oversold.
Mutual fund managers have had a love-hate relationship with Apple (AAPL) over the past year. The same can be said for SPDR Gold Trust ETF (GLD). Both fell out of favor recently, and although many mutual fund managers have had positions in them, as the first half of the year came to a close last week, few actually wanted to report to their shareholders that they were holding either one.
Window dressing is the act of manipulating positions so that the quarterly mutual fund report offered to shareholders reflects positions that might be most attractive to them, even though it might not properly reflect the holdings of the mutual fund during that time period. This is a common practice, and because mutual funds did not want to report sizable positions in Apple or gold, there was added selling pressure in both as the quarter came to an end.
The question is where will these instruments go from here? The fundamental rationale for the decline in Apple goes back further than any recent news event. While the company has excellent products and selling skills, it must be much more innovative to stay ahead of the competition. In recent weeks there has been additional pressure from window dressing.
Gold, meanwhile, was under pressure even before the Federal Reserve hinted at tapering its monetary policy, and that was largely due to the stability in equity markets and the economy in general. Gold is more in favor when monetary and fiscal policies are not well formulated, and although there may soon be changes to the former, the argument is that policies at least reflect the current environment. Risks are clearly still there, but unless monetary or fiscal policies begin to diverge from economic conditions, gold may not regain its former luster.
In both cases, investment risks are extremely high. In the case of Apple, if it doesn't innovate it will stagnate. As for gold, unless serious problems arise it will not likely shine any time soon. In both cases, long-term investments appear to have more risk than short-term trades, so the focus has to be on trading specific opportunities. While the underlying fundamentals for Apple and gold have not changed, the recent window dressing left both oversold as of Thursday.
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The offering could become the second-biggest this year if underwriters exercise an option to buy more shares.
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