After hitting a rough patch the past couple months, some may feel the end is near for Apple (NASDAQ:AAPL). But for contrarian investors and amid the bearish sentiment, the seeds are being planted for a new bull market to emerge in AAPL stock.
This past year didn’t end well for Apple investors. AAPL stock finished 2018 down about 5.5% — sans dividend — while dot.com-peer Microsoft (NASDAQ:MSFT) took over the top spot as the world’s largest publicly-traded company.
From U.S.-China trade war tensions, supply chain warnings, weak sales guidance, global recession concerns and the broader market experiencing its own growing pains, there was plenty to blame AAPL’s stock performance on last year. And 2019 didn’t begin any better for Apple.
The company’s well-publicized ‘iPhone and China-driven’ warning sent shares tumbling 10% and brokers slashing AAPL stock price targets. The news also caused the broader market to quake at the knees as Wall Street investors performed a classic doom and gloom rendition of the end is near.
But is the end really near Apple?
…Only the end of the bear narrative.
AAPL Stock Monthly Chart
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Back in late December and with shares near $147, I laid out the case for why it was time to visit AAPL stock as a contrarian, deep value candidate. With shares a handful of percentage points higher, you might think the opportunity is already gone, but you’d be wrong.
The opportunity to begin accumulating shares has been reinforced by Apple’s early January warning and subsequent price action resolving itself by establishing a bullish reversal pattern within AAPL stock’s well-established Fibonacci and trend-line support zone spanning the past decade.
At this time, contrarians could opt to wait for confirmation of a monthly bottom to signal in February. However, given Apple’s warning and growing evidence of a bottom, I expect AAPL stock will stage a relief rally when the company reports at the end of the month. As much, buying Apple shares today continues to make sense as part of an accumulation strategy.
Alternatively and for options spread traders, buying the February $160/$165 call spread for up to $1.25 is a way to limit risk to less than 1% of the exposure associated with owning AAPL stock — while being in strong position to capture solid earnings-driven profits if our forecast bears fruit.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities 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 options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
