Apple: As I've mentioned numerous times, I've been flat Apple for a few weeks now for the most part. I did unwind a leap play before the big drop but it was a very small % position. My goal was to resist all temptation to be long the stock via options ahead of the report. There was little way that the stock was going to rally as I saw it in the face of what has been a tsunami of bad news and reports. When blood in the streets becomes a river, that's when I get interested.
Apple is an interesting case in this regard.
Firstly, I was successful in sitting on my hands through the report last night. The only play I found myself considering was selling $360 (or so) puts to collect the premium. I also did consider selling covered calls against my long shares by opted against both ... and instead took a seat on the sidelines.
As expected, the report was as bad as I and many others thought it would be. This isn't a death blow by any means, regardless of what others will tell you. But it is a game changer for trading the stock at this time.
There were very few points of light in the report. If not for the 15% div increase and buyback, the stock would have sold off 10% in my mind, maybe more. The fact that this did not occur simply tells me that we are now in a new game between a growth and value play. In fact, the stock reacted positively until Tim Cook threw a wet blanket over the remainder of 2013 by exclaiming that exciting things are coming in the Fall and 2014. Too much talk like that over the past couple of quarters with no fire below the smoke.
Smart money understands that Apple, until further notice, is transitioning into a value play. For the remainder of 2013 I fully expect it to trade as such. The "until further notice" is at the time that Apple releases it's next vertical or paradigm shifting product.
Where to from here in the short term?
We're not nearly through the shares that will need to change hands from the growth investors to the value/income investors' hands. Those looking for growth out of Apple matching previous quarters will unwind positions. Much of that could have been done ahead of the report, but I'm still expecting a fair amount of distribution to come out over the next 15-30 days, especially heading into May. While this ramps up, dividend and value funds, analysts and main street will begin accumulating. What we have here will be a push/pull transition that should buoy the stock to some degree with the path of least resistance being further to the downside. I'm looking for the $375-$385 level again .... and would not be surprised to see us hit that in a single day when downside volume accelerates. I think we could still see a day of capitulation that forces quick unwinding of long trading positions.
For 2013 calls, I suspect a fast erosion on the premiums. Without the exciting product launch or refresh that will move traders, there's little reason to take long call positions for the near term. That all said, after this erosion takes place and if we can get a cheaper price, the 2015 near/at the money leaps could be rather lucrative. The goal here is to allow the premium to bleed off from the growth objectives and into no news ... and then take the cheaper positions at a point when the stock is fundamentally cheap across many metrics ... which is now.
Value and dividend accumulation will begin and with the buy-back picking up, I'm expecting a basing in the stock price. At a point between $375-$385, along with some basing days of trading ... I'll likely start looking at my next play.
It's important to realize that there is no guarantee that Apple will return to a growth story. But nor does it need to. For trading, or long term investing, the fact is that they still have the potential to be whatever they choose to be. The most alarming thing to me from the last report had to do with the relatively small R&D expense, something that the stock price has often traded in lock-step with ... at least to some degree.
For the long term investor, I personally love this action. It's tough to find quality income and value plus with a high delta of growth potential if they release the next vertical 'big thing'. There's too much potential for me to ignore here but my focus has changed in that it now becomes a long term trading story over the short term vehicle that can deliver huge % increases that many of us have realized.
It's also the perfect reason why I follow the old rule to "never marry a stock or a company". When you do, you lose objectivity. That can happen on either side as well. SO many have missed out on one of the greatest money making opportunities (Apple) because of mindset or subjectivity. Their loss.
The market is searching for the next great leader as it stands. Google can't be it after its run, but it still has some potential. FB blew it. NFLX has been reborn. I love the 3D printing sector as you all know. The growth money will rotate now.
Cheers all
TJ |
