I am not going to lie to you, there is very little as it relates to the stock market that I am going to think about between now and Monday at 4:30 pm aside from Apple’s (AAPL) fiscal Q2 results and forward guidance. Regular readers know that I am a huge fan of the company and their products (I probably have 20 of them in my home and business) but I am concerned about the entire global investment community’s love affair with the stock itself. As a part time financial pundit I spend a good bit of time attempting to poke holes in the bull case for the shares. The way I see it, some one has to try it. And while I take heat about playing the bear on AAPL lately from my peers on CNBC, or hate filled tweets from the Peanut Gallery, I can only say, “You’re welcome!”
Here’s why. In what investment universe would you want to be long the most universally loved and widely owned stock, let alone the largest the world has EVER seen and only hear analysts, investors, industry people and pundits sing its praises. You’d be flying blind. As far as I am concerned I can only become very convicted on an investment idea when I have a full understanding of the opposing bull or bear case.
As for earnings, the options market is only implying about a 5% move between now and next Friday (or about $6.70 vs stock ref of ~$130). The average one day move over the last 4 qtrs has been about 4.8%. The implied move looks fair to maybe cheap, but that is also a function of the broad market and the fact that AAPL’s realized volatility (white line below: how much the stock has been moving) is at the lowest levels of 2015, and implied vol (blue below) is well below the levels prior to its Q1 report in January:
Oh and from a technical perspective, the one year chart looks like a launch pad:
I would add one slight note of caution. While I said the implied move looks “fair” it is important to note that the implied move of about 5% is equivalent to about $38 billion in market cap. On January 29th prior to AAPL’s Q1 report, the options market was also implying about 5%, and it bested that by a touch, but the stock has risen 20% since then, gaining more than $120 billion in market cap since. You get the point, the higher the stock goes, the harder it should become for the stock to continue its pace of upward trajectory. Unless the entirety of the investment community is correct and the stock is going to straight to $1 trillion in market value.
We will have a much more in-depth preview on Monday prior to results.