There has been a tremendous amount of hype surrounding Apple’s release of the new iPad. The media attention comes after another blowout earnings quarter for AAPL. Apple is sitting on a huge amount of cash, consistently beats on earnings, and is probably the most innovative of our large cap technology companies. Personally, I have an iPhone, which is with me wherever I go. I am typing this blog post on a MacBook Pro. I love this computer, and have long been a satisfied Apple customer.

But I’m not bullish on the stock, at least for now. First, the broader market looks sick right here, as we experience another day of brutal selling after some tepid buying earlier in the week. Second, if we look at the AAPL chart, it is looking toppy.

Checking out the AAPL daily chart, we can see that price got a brief boost after the earnings beat in October, but then failed to follow through until price briefly made a new high in December. We saw a flurry of trading activity after the January earnings report, but then price has again sunk back to the support level that goes back to October. Considering this action during the past several months, along with the current distribution taking place in the broader market, odds would seem to favor a break of support in the 187.00, and a test of the 200 day moving average around 175.00.

Investors should carefully watch the consumer reactions to the iPad. Over at TradeKing, bigdog summarizes some of the reviews so far, including $499 price point, and the iPad features. The major complaint I have been hearing, pre-release, is that the iPad is simply a large iPhone, and therefore nothing revolutionary.

I also own a Kindle, which I use on a daily basis. Personally I think the Kindle is a clunky device, but it has the distinct advantage of E Ink (readability), long battery life, and vast quantities of available content. The Kindle is simple and utilitarian, but it gets the job done, particularly for students and travelers. I live in Brazil and travel frequently. The Kindle has given me access to much more reading content than I would otherwise have, and it is portable. My guess is that Amazon will need to cut the price of the Kindle, or somehow significantly upgrade its capabilities, and I’m not sure they have the engineering team to do the latter. If the Kindle gets below $150, we will be talking about very different markets for the two products.

Which brings the question: what exactly is the market for the iPad? What niche does it fill? With the jury still out on these questions, and the chart displaying some very questionable technical action, conditions look bearish for the stock in the immediate future.

Looking further out, Apple is still selling plenty of iPhones, and is continually gaining market share in the personal computer space. Apple is a quality company, and one I would generally recommend for long-term investors. I just think the long-term investor is going to have the opportunity to buy shares at a significantly lower price.

Friday saw some crazy trading, as investors reacted to a surprisingly good employment number. Price gapped up to start the day, proceeded to fall sharply, before gaining traction late in the day to close slightly positive on very heavy volume. The dollar also saw a strong rally, as traders considered the possibility that a stronger economy may result in higher interest rates. Here’s a look at the 2 minute chart of SPY, showing two days of trading:

Monday will be a very important day, as traders take the weekend to consider some confusing crosscurrents. We are also in the midst of the holiday shopping season, one week after Black Friday. Certainly the improving employment situation is good news for retailers. However, it is instructive to look at the charts of retailers who rely heavily on the Christmas season.

First, let’s take a look at the retail and consumer ETFs. RTH gapped higher at the open today, and then actually closed negative on increasing volume. This is a short-term bearish signal, although price is still trading in a rising trend above the 50 day moving average. This is not a place to buy RTH, but nor would I get overly bearish unless it breaches the 89.00 level.

XLY, the consumer discretionary ETF, fared better, closing positive on increased volume. Still, I wouldn’t call the action today particularly bullish as price failed to make a new high despite the positive news, and would wait to see how things move on Monday.

Over at TradeKing, bigdog comments that Black Friday sales were sluggish, and Cyber Monday sales were much better. The charts are supporting this evaluation, as stocks like BBY and AMZN look relatively strong.

- BBY recently broke above a 7 month trading range, and is trending higher.

- AMZN reported blowout numbers for the last quarter. Price appears to be in the process of pulling back after a strong run. I would prefer to see a base form before starting a position in this stock.

Looking at some other retailers, we see a mixed picture. Macy’s is one of my favorite short setups, as I’ve mentioned in a few prior posts. Price recently broke down from a head and shoulders pattern with high volume. This is still a good entry on the short side.

- GPS held up well today, but has been on my watchlist short. A break below 21.12 would indicate lower prices going forward.

- AAPL also reported some great numbers for last quarter. However, two of the last three days have seen selling on heavy volume, with price breaking below the 50 day moving average today. I think this is a great company, but it looks to be going lower from here.

Video games appear to be out of favor with investors. TTWO lowered outlook and received a 29% haircut today.

ATVI also moved lower in sympathy, but the chart wasn’t looking great before today’s news.

- Retailer GME also looks ill.

At any rate, now is a good time to wait and watch. Some select retailers may be good buys going forward, but after today it is prudent to wait for pullbacks.

As we get into the heart of earnings season, investors will be watching the quarterly results in order to predict the market’s reaction, both short- and long-term. Earnings reports help us gauge the health of individual companies, as well as the broader macroeconomic trends across industry sectors. At the same time, it is important to note that stock price action will often move seemingly at odds with earnings results. This because, at least in the short term, markets do not trade on valuation alone. Moreover, valuation itself is a tricky game.

Henry Blodget explained some of the difficulties inherent to valuation in a 2004 article:

A share of stock is, in theory, worth the “present value of future cash flows” attributable to the share. (In practice, a share is worth what someone will pay for it, but leave that aside for a moment.) Given the confidence with which some commentators cite the theory, a casual observer might assume that the “present value of future cash flows” is an indisputable number, akin to a price tag on a can of soup. In reality, however, it is not a number but an argument, and, in most cases, it is a surprisingly imprecise argument, with a wide range of reasonable conclusions.

Blodget goes on to discuss the complexity of evaluating future cash flow given the uncertainties of the broader economic environment, future earnings, and, particularly, interest rates. As he says,”Over the long haul, thankfully, valuation does matter: The market is not random, stock prices do tend to regress to long-term means, and long-term investors are better off buying when stocks are cheap. As discussed in a previous piece, however, the “long term” is long (decades, not years), and valuation is not a particularly helpful prediction tool over timeframes of three months to a couple of years (not worthless—just not particularly helpful).”

In this light, we can consider the prior two quarters of earnings results, post meltdown, that led to continuation of our remarkable rally. At no time since the financial crisis began have company earnings been particularly good. In fact, across the board, both revenue and earnings have been down drastically. Remaining profits often have been the result of cost-cutting, or in the case of the larger banks, profits from trading with taxpayer dollars. Moreover, when it comes to banks and REITs, financial results have not been marked-to-market. Therefore there are certainly enormous unreported liabilities throughout the system. As in many billions of dollars worth. The media has generally reported the sustained rally as being due to improving economic conditions. Perhaps to a degree this is the case. At the same time, it is equally likely that we have rallied due to the massive liquidity injected through bailouts, quantitative easing, and other government activities. Disaster was averted. Yet it is unclear that anything has truly been fixed. On the contrary, we have seen a massive wealth transfer from US taxpayers to Wall Street, in a desperate attempt to solve an overleveraging problem by simply taking on more debt. Our “jobless recovery” rests on very shaky foundations indeed. Most likely it simply sits atop a newly-formed asset bubble.

This week Doug Kass wrote up an excellent analysis of the current season’s earnings, drawing the following conclusions:

1. The third-quarter beats were overhyped as they are the outgrowth from lowered guidance.

2. If one divides the third-quarter earnings reports by end-market categories, differentiating between the beneficiaries of restocking and those companies that are closer to the end markets and consumption, it leads to two different pictures as to the health of corporate earnings.

3. If end demand doesn’t pick up (and pick up quickly), the 2010 earnings outlook for many industries (such as semiconductors and other beneficiaries of restocking) will be in jeopardy, as will be the now ambitious consensus for S&P 500 earnings of over $70 a share next year.

So what is an investor, or trader, to do in such an environment? For now, the market continues to go up. I remain very cautiously net long in my portfolio, with an emphasis on stocks in the following sectors: energy (especially clean energy), Brazil, China, and select technology stocks. In my view the pickings are getting slimmer, and other signs indicate we may be nearing the a market top. Investors should note in particular the inverse directional relationship between stock market and the dollar. Talk is increasing in Forex circles that the dollar is due for a trend change. Moreover, other countries may soon follow Brazil’s lead in making policy changes to prevent overvaluation of their currency with respect to the dollar. The world does not want an overly weak dollar. With countries vying to devalue their currencies, and with an appreciating dollar, risk appetite is likely to abate, and stock markets globally could lose momentum quickly.

In other words, if you are a trader, the trend is still up, for now. If you are a long-term investor, tread with caution, whatever the earnings reports may say to you.

I’ll end with one recommendation. Apple (AAPL) reported earnings this week, and broke to new highs on very heavy volume. This company is a superstar. If you are investing for the short- or long-term, you can’t go wrong here.