Millennials are apparently feeling guilt rather than pleasure with Apple’s (AAPL) new Apple Watch and shying away from making it the must-have item in 2015. And while the impact is only a drop in the bucket for Apple’s massive revenue stream, along with a weakened Apple stock chart; the situation appears fit for a bear put spread.
Despite weak demand for the Apple Watch and what would be the first non-10 bagger for Apple’s important millennial demographic, the weak product launch still doesn’t amount to Apple having to sweat things too badly just yet at least.
Speaking of sweating though, competitor-to-a-certain-degree, Fitbit (FIT) and its legion of fitness consumers are still happily sweating, much to the delight of that company’s shareholders.
That all said, the next big, big thing for Apple stock is making its debut Tuesday and it’s called Apple Music. Apple is behind the curve in getting this venture started, but one can’t underestimate the company’s devout cult-like following (Apple Watch aside) and industry muscle provided by the likes of its Beats acquisition and artists such as Taylor Swift.
Apple Music is the platform where Apple will sell monthly music subscriptions for $9.99 per month rather than selling songs and albums individually as it did at its 12-year old and highly successful iTunes Store. Spotify, Google (GOOG, GOOGL) Play Music, Tidal and Rdio are competitors already well-placed in this new digital content arena.
Now let’s check out Apple stock in front of its latest product rollout.
Apple Stock Weekly Chart
Taking a look at the Apple stock weekly and it’s not looking like the mini-crash of 1989, but it does look like a chart topper; which incidentally is not at all like Swift’s 1989 album that is set to be an Apple Music exclusive.
Music muscle aside, bears can tune in to the fact that Apple stock broke cleanly below 50-day simple moving average support on Monday while sliding under a modest weekly chart, up-channel line which broke a sturdier long-term uptrend in early June.
Also worrisome, stochastics on the weekly Apple stock chart have shown negative divergence over the past couple months during the chart topper and still look weak during Tuesday’s sell-off.
Finally, Apple stock’s weekly base count is at a potentially extended third or fourth base since early 2014. During that period, shares of AAPL haven’t had any meaningful corrections, which typically does make a stock more vulnerable to just that sort of occurrence.
The sort of correction we’re talking about is the kind where a prior base low is undercut. In Apple stock that would mean shares would need to trade below $103.79 and amount to a correction of 22% and just a nudge more than the 20% threshold for bear markets.
This type of corrective action works as a technical cleansing by removing speculative excesses. Personally, Apple stock hasn’t exactly been frothy compared to many other stock tickers in areas like biotech or cybersecurity; but there is sufficient evidence for lower prices forthcoming.
Apple Stock Bear Put Spread
Reviewing the Apple stock options board, one bear spread that fits in well with what’s been addressed is the Aug $120/$115 bear put spread for $1.40 debit. While still out of the money, the spread makes good use of premiums by selling the $115 strike which cuts down expiration risk by more than 50%.
Additionally, if AAPL shares do proceed lower, the spread maximizes its profit potential of $3.60 below $115. Compared to our “base count” target of $103.79 that gives traders a much more conservative price in Apple stock to cash in on. Further, with earnings out in late July, there’s plenty of time prior to the event and potentially after the report, to make position adjustments.
As of this writing, investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon his observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT
