MorningWord 10/15/13: The mania surrounding AAPL’s stock from the lows of the financial crisis in 2009 of about $80 to the highs slightly above $700 in 2012 will be written about and studied for decades by those eager to examine stock market bubbles. The stock’s subsequent decline from the Sept 2012 highs, while dramatic, reaching 45% from the peak to the trough earlier this year may not be the end of the story, so while academics may well have started their study of the stock’s ascent, market participants and investors are still trying to figure out with hard cash whether the bottom is in.
The 6 year chart of AAPL (below) tells the story in a fairly simple picture, and even to the naked eye it would appear fairly obvious that this story lacks a conclusion. The next couple of weeks could be a make or break period (from a technical perspective) for AAPL as the company is set to release new iPads next week and then report their fiscal Q4 results on Oct 28th.
Despite the stock’s recent bounce from the summer lows and concluding what appeared to be a textbook double bottom pattern, all of the price action for 2013 has been below the uptrend that has been in place since the bottom in 2009. Bulls would very much like to see the establishment of a new range above the trendline, thus rendering it as support rather than the staunch resistance which it has served for months.
The year to date chart below shows the double bottom in green circles, with the break-out above near term resistance at $450 (yellow line), which served as healthy support in Sept after the iPhone launch event. The stock’s bounce aided by positive sentiment associated with better than expected sales of iPhone 5s units and what appears to be no shortage of large hedge funders getting on board.
The stock is now approaching the psychological $500 level, which places the stock in striking distance of getting back to unchanged on the year (one of the few large cap tech stocks down on the year ~6.8%). Unless we have a large broad market swing up or down this week, I suspect the stock to get pinned to $500 in Friday’s close as third largest line of Open Interest is the Oct 500 calls with 44k options open, this could serve as a magnet for the stock.
The fundamentals of the company remain controversial as many remain disappointed that many of the product offerings since Steve Jobs’ death 2 years ago appear to be defensive in nature, rather than dictating consumer trends as they once had. From where I sit it appears that many of the large Hedge Funds who have been vocal about their stakes of late seem more focused on the company’s balance sheet and valuation as opposed to the next iThingy release.
During the stock’s 8% decline to $467 following the iPhone event on Sept 10th we bought an AAPL Oct / Nov 500 Call Calendar with the notion that the sell off might be a tad overdone, and that $500 would be a likely spot for the stock to bounce back to heading into their fiscal Q4 results (which we expected to fall in Nov expiration). The stock has done just that, or near abouts and we have this trade almost exactly where we want it. Now the decision we have to make, will investors be equally disappointed next week with evolutionary iPads as they were with the iPhone launch a month ago? Stay tuned, but I suspect the stock gets back to unchanged on the year at some point in the near future, thus completing one chapter of this page-turner.