The stock market has had an eventful couple of weeks. All year, traders have gotten used to seeing whipsaws from tariff war tweets, especially with China. But this time the dip was a redux of the January correction.
In the last few weeks fear rose over rising rates. This came about from an overheated jobs report, but this time, Chairman Powell, the head of the U.S. Federal reserve was the bigger factor. He sounded too optimistic about the economy. So traders interpreted his words as a commitment to overshooting in the rate tightening cycle.
Higher rates usually result in less money available for driving the stock markets higher. But therein lies the opportunity.
The fear is overblown at this point in time. I am more inclined to take his words at face value that things are looking great for the U.S. economy. This is evident in the company profit and loss statements.
Take Apple (NASDAQ:AAPL) for example. This is a company that delivers on profitability, growth and pays a dividend to boot. And under the current macroeconomic conditions, this is likely to continue. I just don’t see it correcting too harshly from here. Apple stock has already fallen 9% from the highs to last week’s low. But this is merely a halfback check from its breakout on its July earnings report.
Speaking of earnings, we’re about to start another round of tech earnings. And I believe Netflix (NASDAQ:NFLX) will be a trigger for the mega-cap tech sector. I say this because it will cause a sympathetic move in the rest of the “FANG” gang. If Netflix rallies then Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) are likely to follow. And often Apple and Microsoft (NASDAQ:MSFT) follow NFLX as well.
Those companies combined account for more than half of the Nasdaq Composite index. The AAPL stock price stands on its own merit, but the short-term reaction will be more emotional than logical.
AAPL is a gem but in the wrong hands. I have not been a fan of Tim Cook as a leader for the best company on the planet. But even though he hasn’t shown the same ingenuity as Steve Jobs, I still believe he has an unbelievable asset in Apple, so it is almost impossible for him to mess it up in the short-term.
I believe that eventually they will stumble on a another cash cow other than the iPhone. It may even be a service of sorts or maybe a software overlay. But nevertheless, the future for Apple stock is as certain as can be. It will be higher in the future than the current AAPL stock price.
The Best Way to Play Apple Stock
I hear experts say that one should own Apple stock and not trade it. Ideally, I would rather enter long closer to $196 per share. And we might get that in the next couple of months. But I want to nibble long at this level.
This will be a long-term hold rather than a tactical trade. I can accomplish this by buying the shares outright, or I can use the options market to buy in the money calls.
Using options puts less money out of pocket risk. But in either case, I’m a fan of using options to generate synthetic dividends. So I would sell covered calls against either long Apple stock or calls.
The Netflix earnings will be a hard test for AAPL. On its last report, Wall Street punished Netflix very hard. But I don’t believe management misses two quarters in a row. If they do, I expect my long Apple position to also be tested hard in the short term.
There is also risk from the overall Market sentiment. Current rhetoric has built up fear of corrections but those are not imminent in my opinion. Sentiment can be swayed in either direction, all the bulls need is for the current headlines to go stale. But for the meantime, the U.S. is an a economic war with China and until the leaders sit down and start talking rationally the nervousness on Wall Street will linger.
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Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.
