by James Brumley | September 9, 2013 2:06 pm
As it has done so many times before, Apple (AAPL) has put a spring back in its stock’s step with the announcement of another unveiling.
There’s little doubt as to what’s on Tim Cook’s agenda — this is going to be the debut of the much-ballyhooed iPhone 5C, which should cost considerably less than prior versions of the smartphone cost.
The pricing is irrelevant at this point, however. The sheer euphoria of a new product is drawing a crowd to Apple stock … as it has so many times for the past few years, and converting at least some of them into buyers. For the right or wrong reason, more of them might become Apple shareholders once the new phone is officially added to the company’s long line of consumer technology products.
With that in mind, what does history say the stock is prone to do before, during and after the impending announcement of the iPhone 5C? Well, to answer that, let’s look at how shares behaved around the company’s (arguably) biggest game-changing product debuts.
While we didn’t know it at the time, this announcement started the pattern of stock-prodding product unveilings.
Remember, back then, Apple wasn’t seen as much more than a computer company. Although iTunes was already up and running as a service that converted CDs into a portable, digital format, the market didn’t view it as much more than a convenience. When the iPod was announced, all of a sudden the iTunes service started to make a lot more sense.
However, it didn’t spur an enormous amount of immediate interest in Apple stock. We saw a decent volume bump, with a little bullishness from AAPL. But it took several more weeks for the news to really sink in and for Apple stock to heat up.
Although Apple had continued to make computers and iPods for the next several years, the iPhone was a huge — and surprising — technological leap forward for Apple when it was unveiled in early 2007. And again, this was well before traders had grown accustomed to a regular (and somewhat predictable) string of stock-moving announcements.
But this time, the market wasn’t taking any chances. Traders plowed in, pulling Apple stock up from $85.47 to a peak of $92.98 a couple of days later.
By the end of that month, though, it was clear the market still wasn’t quite sure just how big of a deal this new iPhone would be. Apple stock was actually underneath the pre-announcement price heading into February 2007.
As if Apple hadn’t already done enough to change the way we think about and use digital technology, the company wowed investors again in early January 2010 with the advent of the iPad. Although it wouldn’t have the impact of the iPhone, putting the web in a truly portable and functional format like Apple’s tablet still was a huge step forward.
So why didn’t Apple stock move higher as it had with announcements of other game-changing products?
Because by that time, traders had caught on to the post-announcement-rally tendency, and in an effort to capitalize on it (the iPad wasn’t exactly a secret by the time it was unveiled), those traders began buy in before what they thought would be an unveiling date.
Problem: If everybody’s employing the same tactic at the same time, there’s no edge. Sure enough, there was no gas left in the tank once the iPad officially debuted.
While the market had seen newer versions of the iPhone before the fourth generation came out in June 2010, the distance between the iPhone 3 and the iPhone 4 was perhaps the biggest technological leap among all the iterations.
And, the announcement of the fourth-generation iPhone also seemed to catch at least a few investors off guard, judging from the knee-jerk buying over the course of the middle of that month.
As was the case earlier in the year with the iPad, interest waned pretty quickly and turned into outright selling by the end of the month.
In the same way the iPhone 4 was the biggest leap from a prior version of the smartphone, the fourth generation of the iPad was also the biggest leap forward for the device. The debut of the Mini wasn’t chump change, either.
Unfortunately, by that time, the stock was already in a nosedive that wouldn’t slow down until April of this year.
Just a run of bad luck and/or bad timing? Maybe. Or, perhaps once again the market already knew what (and approximately when) the announcement was coming and pre-emptively plowed into shares through the middle of September. Still, the news didn’t even make a dent in the downtrend.
Trading today’s Apple news is a coin toss at best now that most everyone is trying to get in or out before everyone else. The time to get in or out is when it’s not being pushed around by impending news or the post-news reversal.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
Source URL: http://investorplace.com/2013/09/read-this-before-you-trade-apple-announcement/
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