The Trump administration’s sit-down with Silicon Valley was a “great” meeting, apparently. All the same, Apple Inc. (NASDAQ:AAPL) is facing challenges off and on the price chart … and right now Apple stock is ripe for a short-term bear play.
Trump’s tech summit on Wednesday saw our president-elect complete a beautiful 180-degree turn that even a figure skater would envy. He met with Apple’s Tim Cook, Amazon.com, Inc.’s (NASDAQ:AMZN) Jeff Bezos and other large-cap tech royalty whose companies have been on very thin ice of late.
On the agenda for Apple stock holders: overseas manufacturing, immigration and other key issues previously brandished as bad practices Silicon Valley needed to change as part of Trump’s broader “Make America Great Again” campaign were discussed.
Lo and behold, one quick media opportunity later, and Apple has seemingly found a friendly partner with the president-elect. Trump went so far as to say the administration was ready to do anything it could for the tech industry.
His words: “This is truly an amazing group of people.”
AAPL shareholders also might be pleased there wasn’t a peep about boycotting Apple products. Or that other recent and infamous attacks against the group weren’t raised during the tech summit.
As an investment, though, Apple stock still has its work cut out for it.
We’ll say it again: Apple stock isn’t that cheap. Qualitatively speaking, iPhones no longer hold the cache they once did. That’s a problem for AAPL shareholders. The reality of weaker pricing power in the face of diminished brand value means lower margins.
There’s also Trump’s still-on-the-table protectionist policies against China to consider when looking at Apple stock as an investment — and that could be a large drag on its share price.
On Wednesday, General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) faced their own minor backlash from the world’s second largest economy. Similar threats or government actions against Apple could prove disastrous for the company.
Apple is not only reliant on China for manufacturing, but it’s also critical for its future growth.
AAPL’s stock charts don’t look so great, either.
Apple Stock Chart
Click to Enlarge
The concern now is that AAPL faces resistance from its prior up-channel with an overbought stochastics indicator. This puts the trading advantage in favor of the bears.
As the chart shows, stochastics with similar readings have been a good tool in warning of pending pullbacks and corrections.
Admittedly, a modest penetration and slightly higher bid to fill a prior bearish price gap may be the actual last hurrah for bulls. Nevertheless, if history rhymes — something we think will pan out — AAPL stock is headed lower.
How to Trade Apple Stock Here
Premiums, like most everywhere else, are fairly cheap in AAPL right now. It’s the kind of environment where buying a straight-up long put can make sense. However, given our technical view that Apple still might push modestly higher, I want to reduce risk even more.
We can do that with a bear put spread.
One vertical that looks good here is the AAPL weekly Jan. 6 $113/$111 put spread. With shares up 1% at $116.35, this Apple stock vertical is priced for 35 cents.
The trader’s risk is contained to the small debit paid, so if AAPL doesn’t move below $113 by expiration, the 35 cents is lost in full.
If Apple stock confirms its historical tendency to correct in such situations, a payout of up to $1.65 per spread (or the opportunity for an adjusted, no-risk profit) is definitely possible.
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 Christopher Tyler’s 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.
