You’ve heard it many times on TV that you don’t trade Apple (NASDAQ:AAPL), you own it. Since it is at all-time highs, no one can argue with that fact. As an investor who likes to buy low and sell high, I would rather wait out this rising wedge in AAPL stock.
Wall Street will have an opportunity to buy it at a much lower level. I don’t need to short it either because the price action is too hot. Clearly it is a money making machine and for years to come.
Tim Cook inherited a cash cow and it’s hard to mess that up. They are in the process of shifting from being strictly a product company to relying more on services. It is important that they divest from the iPhone so that a dip in those sales don’t break an entire quarter’s performance report. While the transition is not complete, so far it looks like they are successful making the turn. Apple clients remain very loyal to its ecosystem. Although I am not one of them, I understand the phenomenon.
It makes no sense to bet against a company that sells out of every widget, especially when customers don’t mind paying a stiff premium for its products and services. That is an ideal situation for any business to thrive for a long time. Contrary to expert advice I like to trade AAPL and I shared one back in January that created profits out of thin air. But the long term strategy remains as easy as to buy-the-dips.
AAPL Stock Chart Has Clues
The charts suggest that there will be an opportunity to engage long but from a lower level. I’d like AAPL stock closer to $285 per share than up here.
I know it seems impossible, but it was there just a few weeks ago. The recent rally has been very aggressive and at some point markets need to breathe. Otherwise it becomes too fragile to have a mild pullback and the slightest headline hiccup would cause a major freakout. Conviction is very thin near all-time highs, so traders will be quick to pull the triggers on the mildest of challenges.
Speaking of which, we will have a potential catalyst tomorrow after the job report comes out. Last month the Non-Farm Payrolls showed a giant increase when we were expecting job losses. The reaction on Wall Street was positive and of epic proportions. Tomorrow’s report would probably need to repeat performance in order for investors not to throw a fit. The outcome is completely binary and this will include Apple.
The scenario is simple, it will either set a new all-time high or retest the breakout necklines near $295. This is not the same as predicting a huge drop. I am merely pointing out the fact that technically there are scenarios in either direction and both bulls and bears need to be cautious in the short-term.
Buy-the-Dip Will Work for a While
Long-term, I support buying the dip and the bigger the better so if the negative outcome materialize it’s not the end of the world. I was lucky enough to sell puts when it fell to $90 per share and people still feared it. I’m happy to do it again on big drops
Fundamentally it’s not cheap, but it’s not bloated either. It is hard to judge Apple’s value right now because its transition into services is not yet complete. Moreover, the old metric thresholds will change along with that. It is now running near a 28 trailing price-earnings ratio and six times its sales. This is expensive relative to its history, but what was normal then is different now, so it’s a broken ruler for that purpose. Value is not a reason to short apple and that’s a fact.
The rush into 5G is critical and it is a source of risk for Apple. But they are making the push to be among the leaders. They have earned the benefit of the doubt so the assumption is that they will succeed at it. Management has six to eight months to prove it.
Here, too, there is risk stemming from the overall markets because the indices are too far extended. Any wrinkle there will extend to the AAPL stock. It cannot rally all by itself if the markets are falling. Wall Street has a lot of confidence in the Federal Reserve, and I’m afraid that they could disappoint us, especially if inflation rears its ugly head. After all the money has never been looser so inflation will eventually come up big. This is a realistic and reasonable threat.
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.