MorningWord 1/14/13: $AAPL’s Sentiment Trending With Its Stock Price

by Dan January 14, 2013 8:55 am • Commentary

REMINDER: Enis and I will be hosting a Webinar today at 4:30pm EST entitled, “Anatomy of an AAPL Earnings Trade With Options”.  We will run through the qualitative and quantitative inputs that we use to evaluate a potentially volatile earnings event, and walk listeners through the process that we use too ultimately arrive at our event trades.

Please register here: 


MorningWord 1/14/13:  From the 2009 lows to its recent 2012 all time high above $700, AAPL’s stock price gained nearly 800%.  Since the company launched the iPhone back in mid 2007, revenues have increased more than 6 fold, which at the time were heavily skewed to iPods (~45%), compared to iOS (iPhone and iPad) now accounting for 2/3 of AAPL’s sales.  Over the last ten years, the company’s ability to anticipate consumer trends, create products that would be met with insatiable demand and innovate has been the one of the most unique consumer stories the world has ever seen.  Let me repeat, HAS.  The price action in the stock since the Sept 21st, 2012 iPhone launch is a fairly obvious statement that the investment community is hip to the HAS part.  While the story is far from over, the fever has clearly broken, and the stock will be left to trade on its own merits, rather than just floating along on the fumes of the product and stock mania of the last few years.

Take the story from the Wall Street Journal overnight suggesting that AAPL has, “cut its component orders for the iPhone 5 due to weaker-than-expected demand”, this coming just a little more than 3 months after the release of the product. I am not exactly sure why this comes as a huge surprise, as this was one of the many rumors bedeviling the stock after the Sept launch of the iPhone, and given recent OS market share data (showing continued strength by Android), AAPL clearly has their hands full with an increasingly competitive smartphone landscape.  There seemed to be a continued disconnect (until very recently)  btwn sell side expectations, as some analysts were expecting unit sales north of 50 million in the quarter, implying year over year growth of more than 40%.  Now it appears the street is getting a tad nervous and continue to slowly rachet down expectations as we get closer to the company’s fiscal Q1 report next week on Jan 23rd.  Since AAPL’s Q4 report in Oct, sell side expectations for Q1 that once sat at $15.50 have now been tempered by almost 15%, which would signal the first year over year earnings decline in the fiscal Q4 results for AAPL in the last 10 years.  I guess my point here is that sentiment has gone in lock step with the stock price, and it appears to be getting increasingly negative as the stock flirts this morning with the psychologically important $500 level.  See Enis’ technical thoughts on Friday’s CotD post.

The lower the stock goes, and the higher the implied vol  in the near term, the greater the opportunities will be into next week’s print.  The stock is clearly a hard press here on the short side, but everyone (and their mother) is looking to buy this with a 4 handle, which makes the set up kind of treacherous from a directional standpoint.  It seems like one of the few things that could turn the sentiment tide would be a deal China Mobile and their 700 million users, maybe Tim Cook gets that and why he just completed his second trip to Beijing in the last few months.

Tune in later to our Webinar for more detail.