STOP WORRYING ABOUT JANUARY FREAK OUTS
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1. Long SPY 10,000 Shares @ $142.29.
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1. Apple Long-Term Position: 1,175 shares x $451.71 = $530,759.25
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THE LIVE BLOG 9:30 AM – 4:00 PM
9:15 AM — Apple looks like it’s going to open lower today on very weak market futures. But I wouldn’t worry too much about it. First, Apple had a bullish engulfing candlestick yesterday. That is a clear bottoming sign. But it is always historically very bearish for the next session. It’s actually called a “bullish-bearish engulfing candlestick” to those who know it well. The following day closes in the red very often, but after that it tends to signal a general trend-change. Also, the market is oversold so even with these deeply red futures, we should be getting a bounce here soon. That’s why we are long the SPY at $142.29.
10:20 AM — If you were wondering how Apple was going to perform given that it was coming off of a correction just as the S&P was beginning one you only need to look at yesterday and today’s performance. While Apple is in the red today, right now it’s only down $5.00 on a Dow -200 day. That’s actually not too bad. The entire NASDAQ-100 has actually corrected ahead of the market. So you will see general tech outperformance during the correction.
10:40 AM — So I published my notes on the Google v. Apple debate at Fortune. It’s going to be my last sort of public article for a while. As I said yesterday, I’m sort of done with being Apple’s public defender because it’s too disruptive in the end. Trying to curb sentiment is something that is accomplishable but it would be at too great of a cost. Plus, most people don’t even realize what I’m trying to do and just view it as some selfish attempt to widen our exposure. We closed our publication to new subscribers. So that’s not even close to what we were trying to accomplish but I can tell that many took it that way from comments, e-mails and what was sort of said. The commentary missed the point entirely. So I’m not really going to take on that fight. At least not now. I will take it maybe a year from now with the right staff. As I mentioned, you need at least 20 people who are excellent writers, with extraordinary finance backgrounds who can research and counter every argument that is launched against Apple. Basically, you would level the playing field by balancing the amount of negative reporting with positive reporting. But that is something to think about for the future. For now, we will just act according to the state of affairs. But here’s the piece:
Buy Google or Apple? The answer is simple
10:47 AM – It seems very quiet. What? So when Apple is doing well no one says anything but when its crashing we get 900 comments in a day?
11:08 AM — Alright. So far today’s action in Apple has more or less confirmed to me that the bottom is for real. The stock is being bought on every little dip today. What’s more, it’s clear that yesterday’s bullish engulfing candlestick is very much real and today is the normal after-effect which is just a little amplified by the market. Notice that most Apple bottoms are followed by 1-session in the green and 1-session in the red. Don’t believe me? Think I’m making this up. Go back and see for yourself. The only thing that can derail yesterday, is a bearish engulfing candlestick. Apple would need to close back down near $609 a share again. So just sit tight, wait for the iPad mini event and relax for now.
12:11 PM — So let’s talk about the SPY for a bit here. Today’s action brings the SPY right into oversold territory again. Yet, the problem is that we have seen a clear-cut breakdown on the head & shoulders top that developed. So here is how we will play this. Remember that we just took a long position near $142.29. That’s just a dollar above where we are today. I’m fairly sure the SPY will re-test the $143.00 level — the neck-line — and then it will likely plunge all the way down to the 200-day moving average. I think Apple will see some extended selling after earnings. We may see the same thing that happened last year. And that is this. Apple may see some big move on earnings, but then it will sell-off for 5-weeks. We saw that happened after October earnings and after April earnings. The reason I think this is how things may play out is because I think the market correction has only just started. Today is the first session of a breakdown. You can expect at least a test of the 200-day moving average down near the $135.00 level. You can expect that at a minimum. What will end all of this disgusting selling across the board — Apple, the markets and everything else — is an oversold $NYMO. We need to see the $NYMO drop down into the -80 level. Once that happens, the QE3 rally begins. The QE3 rally should take Apple and the markets on its voyage to all-time highs. All-time highs for the markets and all-time highs for Apple. We’re talking 1600 to 1700 for the S&P and $1000 to $1200 for Apple. Take a look at the SPY chart below:
I think it’s time for us to publish a Bullish Cross Weekly. Now let’s think about where things have been. This correction in the S&P was so predictable. We actually laid it out step by step. Remember, the topping process began over a month ago with the introduction of QE3. The minute the SPY had a session where it opened and closed above the upper b-band, it resulted in a full-fledged topping process. See below:
Here was an example of a topping process — for the April 2012 correction — that we laid out for everyone more than a month ago once the S&P gapped-up above the upper b-band. See below:
Now here is what we laid out as the topping process for the S&P 500 during this particular correction. Today is confirmation that the correction has begun.
Now here is what is really really annoying. I was sort of expecting the correction for Apple to be beginning this week. Maybe next week. That’s what I was expecting for many reasons. First, look at the S&P 500. The correction is just getting started. Why? Because the topping process takes like a month to fully develop. This one was no different. So from a timing perspective, we sort of expected the correction to begin this week or next week. Really, it should start for Apple on Friday morning. Usually the ideal place to be selling is on the gap-up the day after earnings. That has been the case for pretty much 90% of the quarters for Apple. It’s rare for it to not be the optimal sell-point.
Ok. So now what does this all mean for Apple? It already had its correction. Does this mean it will now have to have a second correction with the markets? Probably. But I think the second correction will be a lot less severe. I think Apple will outperform on the correction. Also, when you consider that Apple is probably going to gap-up on earnings, it will have a higher level to work off of. So here is what you can sort of expect to see with Apple. I think this is how things will play out:
The other thing that could happen here is a full v-recovery. Apple could brush-off the correction and do its own thing. We’ve seen that happen before. We’ve seen Apple go vertical all while the market is selling off. So here is another potential way things could play out from here:
1:00 PM – This live broadcast is going to be really great. Hopefully, Apple will choose to do this more often on an ongoing basis.
2:00 PM — We’re reducing estimates for Apple’s fiscal Q4 2012 earnings from $40.8 billion down to $38.130 billion in revenues. We’re reducing EPS from $10.76 down to $10.36. That’s a $0.40 reduction in EPS as a result of a 5 million unit shortfall on iPad. I’m just going to go ahead and assume that 100 million iPads sold two weeks ago means 15 million on this quarter. We’ll upgrade the full estimates and post them later. That reduces our TTM expectation from $46.25 down to $45.85. That reduces fair value for Apple from $693.50 down to $687.75.
The 5 million iPad shortfall results in a $5.00 difference on fair value. Not much. 5 million less iPads means higher overall gross margins which in turn results in a smaller impact to EPS than you might think. It impacts the top-line more than the bottom line. A 5 million shortfall on the iPhone, on the other hand, would really suck big time.
2:50 PM — While iPads will be light, nothing has really changed in the grand scheme of things. Apple has done some great innovating here and will probably have an extraordinarily successful holiday shopping season. Also, from a trading perspective, remember that today is generally speaking always a bearish day for the stock. But what we’re going to want to see after today is Apple move forward. Without that, then it’s just a rebound. Also, we’re going to want to see a reasonable close today. It can’t sit there and close at some extremely low level. Then it will just invalidate the bullish engulfing candlestick we had yesterday.
Now here is something very important to keep in mind. Whenever a company warns — and Apple has a very elegant way of doing that — the shortfall is priced in. So if Apple heads into the results strong, the fact that it sold 15 million iPads — very well telegraphed by Tim Cook — will be priced in. The reaction on earnings will be determined by the other areas. Revenues, EPS, iPhone sales etc. The stock has already responded to the iPad number. So that’s a positive because that is now behind us. If Apple closes the day >$630, I would take that trade-off every time. Every time. Because we got the bad part of the report behind us and the rest of the report is in front of us. 5 million iPads just doesn’t impact things as greatly as you might think. To put that in perspective, Apple is going to report $10.36 in EPS now. With 5 million more iPads, that would be a $10.76 number. It didn’t even have a 10% impact on EPS. On fair value for the quarter, it had a $5.00 in share price impact. That’s nothing. So these are the important things to keep in mind.
The one thing that did disappoint me a little is this. If Apple is going to update its flagship iPad and call it 4th generation, they really should have spent more time on that. It’s one of their most important product lines. I hope they still plan on introducing a 5th generation come March or if they don’t, then they need to change the cycle. So this current 4th generation needs to be with us for a year and Apple will have to upgrade everything next fall.
I’m not so sure that was a good move on Apple’s part and it could have a pretty dramatic impact on revenues over time during the year. Because we would be stuck with this form factor for way too long. Apple needs to continue to innovate.
There are lots of people who update their devices on every generation of every device. I’m one of those people. I have every iPad Apple has introduced, every iPhone, iPod and most of the computers. I have two new iPod touches. A silver and black one. I’m not going to buy the 4th generation iPad. Not by a long shot. Because I don’t think its a new generation. I don’t view it that way because Apple didn’t really make that case. I hope this is just a minor update and that they have something coming in March.
3:42 PM — So that’s three back-to-back huge swings for Apple. That’s extreme volatility. Apple has moved 3%+ each day over the past three sessions. That’s historically been trend changing for the market. But haven’t seen that with Apple. The only thing we can do here is just watch the set-ups. Again, we have another double-bottom set-up here. Apple will have to hold its lows on Friday, then rebound and take out yesterday’s highs. If it fails to do so, then we will have to see a repeat of the process until such time that Apple finds its footing. I get the feeling that Apple isn’t going to find that footing until it’s valuation collapses under the weight of earnings. Once Apple reports, gives guidance and once its P/E ratio falls to the extreme low end of the range, then we might get some buying interest. Ironically, the iPad mini is probably very bad for Apple here. It’s bad for Apple’s bottoming process and good for Apple’s fundamentals. The fact of the matter is that Apple rarely ever is able to hold ground after a product announcement. On Friday, Apple hit extremely oversold conditions which foretold yesterday’s rally which was derailed I think in part due to the “sell the news” iPad Mini and in part to Dow – 250. No iPad mini event, Apple could very well be in significantly better shape than it is today. That’s very unfortunate. But it is what it is.
So to recap. Apple can bottom in one of several ways. (1) it can form a bottom formation i.e. inverted head & shoulders, double bottom, bullish hammer, bullish engulfing candlestick etc. However, after that happens you will need to see follow through. No follow through, no bottom. It’s that simple. Apple will need to find buyers. And I think for that to happen, we need an extremely low P/E. That’s what has been missing on this correction and what will be available after it reports on Friday. I know this has to be frustrating, but here is the set-up. If Apple catches a bid at Friday’s lows, rebounds back up to yesterday’s highs and can’t breakthrough, then it will have to start all over again. The same process until it works or until the stock goes to $0.00 a share. Whichever comes first:
4:00 PM — Ok. As we head into the close, just note that Apple is nowhere near oversold anymore. Not after the rebound we had yesterday. Also keep in mind that even with our revised earnings for the quarter, Apple’s P/E ratio down here would be 13.30. That is at the low end of Apple’s historical range. We could very well just need to see that print. Remember, that Apple trades somewhere in the 13 P/E range every quarter. At some point in the quarter, we see that happen. Perhaps we will see that at the start of this quarter as well.
Now while Apple isn’t oversold, the broader market is oversold. Both the NASDAQ-100 and the S&P 500 are both pretty oversold. Finally, the last point I want to make here is this. Apple has now formed three different strong bottoms that have failed. What you should take from that is this. Don’t trust the bottom until we have full confirmation. In this case, I don’t think there is confirmation until Apple breaks above $650 and holds that level. That would be a clear indication of a bottom. See below:
Everything else can only be viewed as just an encouraging start. A bullish engulfing candlestick is a very very bullish indicator. For that to fail, makes this a pretty unique case to me. I’m not going to be happy with any indication from here until we see two things: (1) clear-cut follow through; and (2) a breakout above $650. Those two are requirements. #2 will happen if #1 happens. But yesterday’s bullish engulfing candlestick is invalidated.
6:42 PM — So it appears there is a very strong chance that Apple’s refresh of the iPad is the likely culprit of the drawdown in sales. This will become pretty apparent once Apple holds its conference call Thursday afternoon. I’m fairly sure someone will ask about it and Apple’s management will give a lot of color on the issue. I think it’s probably going to be a mix of two issues. First, I’m sure that rumors of an iPad Mini being introduced slowed sales down to some degree and coupled with the refresh we saw a drawdown in the channel on the whole quarter. Well that channel will likely be replenished with iPad 4′s. That’s why you tend to see weak iPad sales in the quarter ahead of a new iPad. It’s not only people deferring purchases. It’s also due in large part to Apple drawing down the channel ahead of the launch.
Obviously, most market participants simply do not have the mental capacity to understand this and thus we have the reaction we saw today. But those sales will likely go to fiscal Q1. But our earlier analysis about why we could see a revenue beat on this quarter of 20% still stands. The logic is still very much there and I’m fairly sure Apple contemplated the whole iPad refresh going into the quarter. So that was part of their guidance. Thus, there is a chance that iPhone sales could still outperform. We could still see a bigger beat driven by iPhones. Time will tell.
7:22 PM — So we forgot to mention today that the $VIX has skyrocketed above the upper b-band. It has opened and closed way above the upper line. Normally, what this mean is this. Once the $VIX falls back under the upper b-band, it tends to mean a near-term bottom for the market. What you might get is a 3-4 day rebound and then perhaps a resumption of the selling pressure. Remember that the indicator works only once the $VIX falls back under the upper b-band. We’ve seen cases where the $VIX just skyrockets remaining above the upper b-band for a whole week. So the minute we see it drop back down into the b-band, it tends to mean the selling is over near-term for the market. Another thing to note is that things are starting to get a little stretched on the indices now. We’re probably due for a small rebound:
Now another thing to consider is this. We need to see the $NYMO fall under -80 or down to -100 before a final bottom is in for the broader market which when that happens, we should probably see the sentiment improve dramatically for Apple and technology stocks in general:
7:30 PM — The NASDAQ has opened and closed below the lower b-band today. Normally that has indicated that a near-term bottom is around the corner. Remember, these are all near-term indicators. The whole correction has a lot further to go. That will be judged by how things sort of unfold on the $NYMO and a lot of other indicators we will introduce as the correction heats up. Unfortunately, we probably have at least another 1000 Dow points before things come to an end. The S&P 500 will probably get down to 1350 before this ends.
Even more important than the NASDAQ is the fact that the SPY has both opened and closed below the lower b-band indicating that things are a little stretched right now. That could be good news for Apple. We will have to see. So far a lot of people seem to think that Apple has cooties. So a market rebound might not help. But one is certainly due.
Looks to me like Apple sold fewer ipads because they wanted to sell fewer ipads, to make room for the new ipad. Which by not waiting until March they are introducing just in time for the Holiday Shopping Season. Here we are approaching Thanksgiving and Black Friday and Apple will have the most kick ass ever ipad on the shelves and ready to be bought. After thinking about it, I realize Tim Cook doesn’t hate me. Tim Cook loves me!
Chillax people–this is good news.
We all do!
ah shucks.
Yeah, people say Cook doesn’t care about share price. Cook knows the share price Every Day. Trust me. You hire overachieving 25 year olds, they jump ship the minute they think their stock options aren’t golden. Anyone who tells you different hasn’t been there done that. You lose those people and you lose organizational energy. And one of the largest launches ever today shows they are going to need that energy. How many overachieving 25 year olds you think walk the halls at MSFT?
So, yup, Tim Cook loves you. Can you imagine what it is like to pilot a ship so large?? Trust me, he has to make decisions about things well before you and I can see them. Makes an oil tanker look like a speedboat. Looks to me like he is doing quite well, just as he has the last 3 or 4 years he’s been running things at AAPL.
Just updated my model again. I’m expecting $9.25 to $9.35 with TTM of about $44.75. Avg PE of $15 gets us to about $670ish. I’ve kept all my Jan spreads topping at $650 – lower profit/lower risk.
Also updated Dec Q and I’m at $18-18.50 with 46.5MM iPhones, 22.5MM iPads, 42.5% GM, (ASP on iPads down to $475 due t0 minis). Puts Jan TTM at $49.25 at 13.5 PE puts stock at about $670 as low end and $738 as mid point at 15 PE. I’m about 25% in Feb 650/670s.
I know my numbers are a lot lower than AZ’s but BC has missed a couple of times on ER and I am not comfortable with the revised $10.36 EPS.
I’m plenty happy with profits at these lower strikes but hope the numbers are much higher!
Why is no one considering the fact that pretty much the entire line up has been refreshed for the holiday season? Visit an apple store and you now have so many new shiny devices to choose from.
Also How exactly is a another tablet maker expected to make profits competing with a $329 shiny new ipad? It’s the competition that should be freaking out now.
Lets face it, the stock would have taken a beating even if the mini was priced at $299 on account of lower margins. I think the ipad mini is a perfect second device for families and is going to sell like crazy. Lets not forget the ipad mini is a new segment and surely once analysts add that to their estimates, target prices should move higher.
Why so serious then? This thing is flying past 700 come January.
I agree Great post. Apple’s decision to upgrade the IPAD 3 is a positive. I am now trying to figure out which IPAD I will leave at home , and which one to take to the gym. Go to an Apple store, you will feel better.
Ok, here’s my few cents about today epic product launch, almost entire apple product line has been refresh in the last 60 days.
1. iPad mini looks like will have build quality of iPhone 5, the $329 price seem high at first, I was hoping for $299 too. If you have played with all the 7″ tablets from playbook to kindle fire to nexus, the iPad mini will feel much more solid and refined, the screen size is bigger for reading (not sure if it’s nice then the others), and A5 will feel a hell a lot faster than a Kindle Fire. For the large segment of the consumer that wants a <$199 tablet, sorry, for right now there is nothing Apple can do because Apple is not going to sell anything at cost, ever. I am sure they can get a OEM to build an underpower iPad for $199 with plastic case and 8gb storage like a large 3GS, if so Apple is joining the race to the bottom and that will really be the end of Apple (Remember Apple refused to make a $299 netbook?). Apple can't really give a sh*t about the low end cheap ass market because of profit margin, so if you only have $199 to spend and want an iOS device, you got your last gen iPod touch or used iPad 1or 2 on craigslist. The $329 price also leaves retailers margin to discount it to $299 at some point, and also lower the price when iPad mini 2.
2. iPad4, since it has the last gen design, this is going to be a new one next year with the iPad mini design. It's interesting that they keep the iPad2 around, may be those have been selling well to eduction, I wonder if they will keep iPad4 around when iPad5 comes out.
3. Retina display. it seems like Apple is differentiating the higher end product with retina on rMBP and riPad, similar to keeping iPad2 apple is keep both 13" and 15" last gen MBP. I doubt we will get rMBA and riMac anytime soon (at least a year from now or mid 2014).
4. Product portfolio expansion. This is one thing that is bothering me. Go to the apple store web site and now it seems we have a huge selection of products. Obviously Apple product line is still in transition to include retina on everything, but the production line is losing some of it's simplicity (I like the old Good, Better, Best selection; and can all Apple products fit on a table now?). This is probably going to confuse some first time Apple buyer even through the entire Apple product portfolio is smaller than HP home inkjet printer line. Take a look at this new MBP page on Apple store: http://store.apple.com/us/browse/home/shop_mac/family/macbook_pro I am going assume Apple going to kill the old MBP design as soon as they can get the higher yield and better margin on the retina display to bring rMBP down to the same price point as the old MBP.
btw, aapl traded just like most product launch day since Justin Bieber was wearing a diaper.
Yup, they price it at 299 they kill their margin. Oh, wait, they priced it 329, they’ve killed demand. What were they thinking? Steve would never let them do this!
Exactly, the critics were going to whine either way, low price=low margins, high price=low demand.
I’m glad they priced where they did. The Mini will outsell the iPap within 12 months IMO. How would you like your second best prodcut for the nest 2 to 3 years to have a low margin, no thanks!
Benny – The cost of producing the basic model will be about $185-$190. With a retail price of $329, gross margin is (329-190)/190 = 73%. Other models, such as one with maximum storage, will have margins of 125-150%. This is way too high, and is the result (it appears) of Apple execs focusing on concerns about cannibalizing the iPad.
Now, the mini will definitely sell to committed Apple fans at $339 and higher, but the true opportunity is selling the iPad mini to nontraditional audiences such as young guys who now buy Android phones, enjoy gaming and spend their afternoons writing nasty things about Apple products, and also consumers in less developed nations. For every one of these nontraditional customers attracted to the brand/ecosystem, significant incremental sales of Apple products would occur in the future. Self-taught economists tend to focus on short-term elasticities while remaining oblivious to more subtle but larger longer-term effects of prices. As I mentioned earlier today, Apple’s analysis of consumer demand is not on a par with the company’s other operations.
http://bullishcross.com/2012/10/bullish-cross-live-302/comment-page-5/#comment-80672
your gross profit calculation is wrong… what you calculated is markup
Gross Profit: (329-190)/329 = 42%
Thanks. More accurate label, same conclusion.
Where do you get your $185-190 cost estimate?
It has appeared in various articles over the past 3 months. The cost estimate was based entirely on components and assembly cost figures taken from iPads, adapted for the smaller form factor. These figures are not what one would refer to as speculative, though they are only approximate rather than exact. Inasmuch as the cost of memory and other components declines every month, it seems likely that iPad mini costs could be even lower than the figure I quoted … and the margin could be larger.
Agree with your views.
To my mind the iPad 4 is the iPad “3S”, it has a faster processor, better LTE and includes Sprint compatibility. There is no reason to keep the iPad3 around. Need all capacity to make the 4 and no need for a price drop on a the 3 which is likely as expensive to make as the 4.
Customers who can’t afford the 4 will still have the 2 with good profit margins this way preserved.
I also think having an iMac mini and iMac priced as low as they announced might be the catalyst for many to jump ship from Windoes to Apple especially with Win8 looking alien compared to existing Windows. Remember the lowest iMac price includes a 25″ screen too.
I think we all agree Apple line up is great. What we are fearing and can NOT control is where sentiment short term will be and where stock price will be come Jan.
Most people here are fully invested and even “moved money from other accounts” to catch “the bottom”. Time will tell.
+ 1 great post
Thanks Adel. yes, iPad4 = iPad3s.
I am 95% invested in aapl spread too, with Nov, Jan, Apr, July, Jan14. Yes, we can’t control short term sentiment but time is on our side, we have 3 months before Jan expiration, that’s a long time for aapl. And let’s say if we are still at 610 at Dec exp, there are still many ways to get out of the trade (to break even or make less money later down the road), e.g. roll to later date + higher spread, or later date + same spread + less number of spread…… I am sure Andy and many other experience traders here can help people get out and avoid complete wipe out.
Someone correct me if I am wrong here, but the iPad Gen3 was completely removed from the product lineup. Mini, iPad2, iPad Gen4. This would make for extra effort of the channel drawdown as often the product being refreshed is still sold, just at a lower price (iPad2). iPad Gen3 appears to be being completely removed.
correct. see my thought above.
JS is considering selling November calls depending on ATT results. He’s concerned about earnings results, may want to sell ahead and repurchase afterward. I like that he’s trying to protect some capital. I’m fully invested and although my near-term spread is a conservative Jan $610-660, I’m starting to wonder because I have no cash. I guess I’m thinking I’ll have a better exit later.
LOL
Here we go again, I think we will reach 900 comments again !
You got to Believe !
Tim just trying to wiggle the apple tree to remove the non- believer.
So is it fair to say that the iPad Mini for FYq4 will be what 4s was last years October earnings?
I say emphatically……. Yes it is….. and Tim threw everyone a bone today for being so short sided.
This being my first drawdown since being a member, if the portfolio needs to be adjusted does Andy step in and walk us through the process? I believe the answer is yes after reading a few posts. I have the Jan 655/705 and an April 600/700. I feel as if I am letting my fear rule me when really if adjustments need be made they will be! I know a lot of you have been through numerous corrections so you probably don’t even respond to the newbies who are caught in the middle of this downturn. Thx for any replies much appreciated!
My thoughts on the issue of where AAPL will be trading come January are on the previous page. Staying calm is the best thing you can do for yourself. The direction in the short term is tricky to consistently determine is tricky. The spreads you mentioned should be fine, and when and if Andy determined the BC spreads need to be changed, he will let subs know. My guess is that they will not need to be adjusted. 700 is pretty close to a shoe in by January.
I am glad I put my concern out there! I am used to using stop losses etc, this style is different and the drawdowns can be gut wrenching! Thx so much Moneyman!
Lexxi – if it helps, just don’t look at your account if all your spreads are out to Jan. It really does not make much difference what Apple does on a day to day basis. You have positioned yourself really well with the Jan and April spreads, so don’t buy into the FUD and panic you see everywhere. Apple will be just fine, just fine. Sit tight until January or until Andy gives different direction. Good luck, the first drawdown is the hardest, and this one has been a dooooosie.
Don’t worry, Andy is most definitely not going to leave his subscribers out on their own to take a complete wipe-out! First of all, I personally believe that both of the spreads you mentioned are very likely to be fully in the money at expiration.
But of course, anything can happen, right? I’ve only been a subscriber for about 9 months, but I can tell you with certainty that Andy is an expert at adapting to changing conditions and adjusting our positions if and when that is necessary (which it rarely is). The phrase “I have ways to un-fuck the situation” comes to mind.
The fact that he has not even mentioned being the slightest bit concerned about the Jan positions means that they are still very safe in his estimation. I am pretty damn sure he would tell us the moment his opinion changes on that matter.
So don’t worry yourself sick! Andy knows what the hell he is doing, trust me. I have given up trying to outthink him because, so far, I have always been wrong when I attempt that and he has always been right.
“So far a lot of people seem to think that Apple has cooties.”
Wikipedia
“Cooties are, in American childlore, a kind of infectious disease. The term may have originated with references to lice, fleas, and other parasites.”
Any thoughts?
I see it as a bullish buying sign when the Cootie-oscillator sinks to -3, as long as the net-covariant Cootie-influx is positive, or has been less than -10, sometime in the past 11 trading sessions.
But that’s just me.
Dude, I had my cootie shot in 3rd grade ….. Although I do have a case of the sweats!
I have confidence in our Jan spreads. The slingshot is being pulled back, the coil is compressed, the pressure is building and soon, very soon, it will be released and those who stand strong and persevere this stressful drawdown will be rewarded as AAPL rises as quickly as it descended. To think we will not revisit the high of 705 by the end of the year is almost inconceivable. AAPL owns the holiday season!
Cooties are a contrarian indicator. By the time you know or have experienced it…. its pretty much over.
Go look at that new iMac on the Apple website and tell me Apple is not innovating. That is the most beautiful desktop computer ever made. My 15 year old (Apple fan-boy) son came home from school today eager to hear the news. He also was most impressed by how stunningly cool the iMac looked. The line up really is uniquely amazing going into this holiday shopping season.
the t 1000000 $$$ question would be what happens on earnings gap up or down ?
i have a strong feeling we are going to gap up. earnings will be beat and Q1 estimates will be raised…Go Apple!
Next 48hrs are going to be a nail biter…want these to go thru quickly, we may get a similar reaction to last earning though…it is setting up at the same price range before ER
ya , is beating up to death . I think we might gap up too
I almost always, every quarter, have a strong conviction about which way it is going to go…not to say I necessarily get it right, but I at least have a view on it.
For this one, I am absolutely clueless. I have no conviction either way. Very confused leading into earnings. Trying to figure out if any earnings disappointment is already built into this price. I guess I need to see the next two days of action to even begin to for an opinion.
The past two weeks have been stinky poo. Knocked my mojo for a loop!
Andy,
The LTM eps is in link below is overstated by at least $5 per share as are all of the implied price targets.
15 p/e * 5 = $75.
http://bullishcross.com/fiscal-q1-2013
That was a May forecast. The miss in the 3rd quarter destroyed that $56 eps estimate
Jack — It’s not that much. I’m thinking closer to $52 to $54 in EPS. I’ll get into why later. We’re updating this right after earnings. But this hasn’t contemplating mini iPad.
Right. Thx
By the way, when I run some back of the envelope calculations for TTM through December, I come up with about $48- 50 eps when I use fairly aggressive growth rates off of prior year normalized revenue of $43 bil. (46.3 * 13/14 weeks)
If I then grow $43 billion by 35-40% year over year growth, I come up with $58-60 bil.of revenue (no small order even for apple).
If I then assume net income margin of 29%, i get an eps range of about $17.50-18.00 for q1.
If we add this to about $31 of eps earned from Jan-Sept (assumes $9.50 announced on Thursday), then TTM through December is 48.50 – 49.0o.
I don’t see how apple grows more than 40% year over year and I think the net income margin of 29% is also aggressive.
Also, assuming apple guides $15 eps (consensus and a victory for us near term), a 20% beat translates to $18 eps.
This means that even if I am right and apple guides around $15 and consensus then becomes 17 since market assumes apple is conservative, then TTM expectations for apple through December will be about $48.
48 * 13-15 p/e equals 624 – 720. I think best case we are range bound for next few months. Hope I am wrong.
Anyone remember Andy saying during the parabolic rally that Apple would be untradeable for the rest of the year? I do. I’ve probably lost at least 50% of my tradeable accounts this year. At the same time, I’ve seen Andy nail the S&P again and again. I read the other day that Andy was thinking of transitioning to trading spreads for the S&P when Apple becomes a less reliable investment. What do folks think of starting that early? I mean, Andy just announced an expectation that the DOW will need to correct something like $1000 points…and many of us are nearly 100% long in AAPL. This really makes no sense to me. Even if we expect AAPL to be $700 come January, why aren’t we at least hedging by shorting the S&P with a commensurate weight of options? I’m also very interested in Andy’s possible scenario that Apple gaps up on earnings and sells off thereafter. Perhaps many are waiting to sell AAPL on the hope that earnings will save their portfolios and perhaps there will be no gap up even with a beat. But if there is a gap up and if Andy is thinking that AAPL will need to further correct with the broader market, why not ease up on AAPL and reenter lower?
good points. I am thinking that the 1000 dow correction can be for next year no ?
I think that the end of the year is still bullish and JAN will be a good time for apple. maybe our last who knows . ALL I KNOW is that
THE GAME has changed. ANd I think that the other side of the trade ,who ever is selling the calls has it nailed down the fact that they know we are all bullish call spread buyers.
NEXT YEAR , if after earnings I will play a different game . this game is over . And I think there is some hedge funds inside BC taking full advantage to know what we all do collectively to do the opposite . Really
Thanks. Well at this instant, Andy is long the S&P, but we know he is expecting to short again soon and that would be the time to take some short call spreads. As far as hedge funds, if they truly have been playing us, they would not be able to play us for SPY spreads.
yea but I think apple is one stock so is more duable to manipulate
“they know we are all bullish call spread buyers.”
I wish Andy still swing trade aapl in BC.
I think you may be giving too much credit or power to the hedge funds and also to the ~700 subscribers here. I think it would take much more then that to keep Apple down as hard as it’s been these past few weeks…it’s much more than a hedge fund or two listening in on us, just like we can’t pull apple up on our own, it will take much more…just my .02 cents.
If you look at the amount of time Apple is spending at the lower B band area, it is quite similar to last Nov which kicked off a mega rally…the other 3 times it touched lower B band this year, it wasn’t long before there was a gap up or a rally to mid/upper b band area…but this current drag down the b band is very similar to last Nov…hope it holds the bottom and kicks off a mega rally on earnings…
The mega rally may not be triggered by earnings, especially with the overall market just starting a correction. But I do whole-heartedly believe that there WILL be a mega-rally between now and January. Our timing was a bit off, not expecting the AAPL correction to occur so early. But in many ways it was the best thing that could’ve happened for Jan spread holders.
So a SPY GAP ABOVE & CLOSE the upper b-band marks the beginning of a topping process. And a GAP BELOW & CLOSE indicates a near-term bottom. Am I getting this right?
Yes, same for individual stocks.
Yes if the gap up/down is caused by ‘random’ trading that drives shares up and down on a daily basis rather than changing fundamentals. If Apple phones are discovered to cure cancer (an extreme example, but you can substitute your own), the stock will gap up and rally hard toward a higher level without ever looking back. And technical analysis will signal sell during the entire journey …
Look at that last plot, the month of May. The SPY can also ride the bollinger band down, so be careful.
Got it. Thanks!
Test post.
Some good news even if there isn’t a gap up on earnings.
Take a look at where we are today going into earnings and where we were on July 24, the day Q3 was reported. We’re much more oversold now than then and near the lower bb. If we do gap down, I suspect it will be short-lived.
https://www.dropbox.com/s/6b6m4zfbuf9bals/Screen%20Shot%202012-10-23%20at%2010.34.16%20PM.png
excellent point. plus – after the earnings miss last quarter, they could take it down to a low of 570. so IF there is a miss again, given what’s coming in the next 2 quarters, in the worst case scenario, shouldn’t we already be at or close to the low where a miss is priced in? look at me trying to apply common sense to AAPL and trading again. should know better by now.
scar & kloot – Right now AAPL is being driven by two major forces: Thursday’s earnings report for the July-Sept quarter and expectations/guidance for the Oct-Dec quarter. Comparisons with the July earnings report are not appropriate if, as I believe, iPhone 5 production bottlenecks impinge upon Apple’s future earnings. That type of challenge to Apple’s fundamentals was not present three months ago.
Using technical analysis to understand share prices being impacted by fundamentals is an exercise fraught with risk to the investor. Being able to draw a chart is not enough to navigate these waters, as the past four weeks have already demonstrated. Technical analysis did not predict the current downturn, and to date has not been useful for predicting its end. What on Monday after the market closed was characterized as a “huge bullish engulfing candlestick” that marks the end of the correction had, by Tuesday before the market opened, been relabeled as a “bullish-bearish engulfing candlestick” which predicts a down market the following day. Before Wednesday’s market open, B/C surveys the carnage from the day before and concludes that “If Apple sells-off from here, it will likely get close to oversold territory. If that happens, I’ll be here to let you know.”
“To a man with a hammer, everything looks like a nail.”-Mark Twain
Every tool has its use, as well as its limitations: http://bullishcross.com/2012/10/bullish-cross-live-302/comment-page-6/#comment-80774
thomas–what I’m gathering from you is that July is inapposite because if there is an earnings miss or if the conference call suggests iphone 5 supply contraints for this quarter, then the stock will not rebound as it did in July after earnings. Is this your view? Would it also then be your view that 700 by Jan expiration would be too close for comfort? I believe you said you were making your larger bets for Feb.
The chart I posted was to allay fears if the stock (for whatever reason) gaps down significantly, but it was meant more as an indication of what would happen in the short term. In other words, if there is a gap down, don’t panic and sell your Jan 650-700s when people start calling for aapl at 500.
“Put all your eggs in one basket and then watch that basket.” also, MT
I really don’t understand why everyone is in freak out mode.
Its because their 655/705 spreads are $40 out of the money and moving south as time ticks by. Now $90 away from full value, and increasing daily.
After repeatedly saying no way Apple misses, aZ just reduced his EPS today and its very likely he is still way too high.
Now do you understand?
Hah! Go look at the front page of today’s BC-live section — I don’t normally see the top of this page except in the morning, and I’m pretty sure item #1 wasn’t there this morning.
Not sure when AZ added it, but nice touch!!
Microsoft Surface … Fail
http://techcrunch.com/2012/10/23/microsoft-surface-rt-review/
“While the Surface RT is a solid piece of hardware, there are a few things that makes the device a bit hard to handle. The Surface RT is a widescreen tablet. It’s 16×9, making it a lot wider than it is tall, so using this 10.6-inch tablet is slightly different from an iPad or Galaxy Note 10.1. When holding it properly, that is, in landscape, it’s a bit too long to be held with one hand. Likewise, when holding it in portrait, it’s too tall to be held comfortably one-handed. In fact, it’s slightly awkward overall.”
exactly. reminds me of the moronic complaints about the iPad not being 16:9. do people think that Apple doesn’t think about these things and figure out what is the optimal user experience given the current technology? it’s like the different between legal-size paper and 8.5×11. one is a pita and one just works right.
someone posted earlier today that Apple was in defensive mode. i don’t see that – what is the reasoning?
imo, it’s the opposite. Apple’s put on a full-court press. new everything in the past couple months. MBPs, iPhone, iPods,iPad, iPad Mini, iMac, and even a new Mac Mini?! i didn’t even realize they still made the Mac Mini. they threw down the gauntlet. a smaller iPad was inevitable, and that’s why the name change of the full-size version in the spring. and they were explicit about why the iPad Mini is so much better than the competition.
Completely agree, I’m very excited about Apple’s lineup of products right now!
Over half of Apple’s earnings comes from a single product whose numbers are limited. Minor product upgrades do not address that problem. Only Tim Cook can address it on Thursday afternoon. Without Cook’s explanation of what went wrong and assurances that problems have already been addressed, AAPL will remain in a defensive mode.
I love the new products, but am not counting on them to fill a hole that’s larger than they are.
I love this tweet from @dmoren:
“I just assume the extra $29 in the iPad mini’s price accounts for the Lightning cable they include.”
i think alot of people on this board are missing the bigger picture. i think the product marketing startegy here was smart. Apple is building a product franchise with iPad… its a multi-year marathon, not a sprint!! If AMZN and GOOG want to make 0% profit on hardware and profit from content/ads, that is there choice and strategy. Apple has chosen to make money on the hardware. So what they have done is tightened the noose just enough (management believes) to capture more unit volume away from AMZN and GOOG. Now they can test the demand elasticity for this product category over the next few quarters… is it really all about price or does the Apple value count for something??
- If they are proven wrong and it is all about price, then they have left themselves options to offer an 8GB version with less features for well under $300 in the future!
- If they got it right, the flip side to this will be that AMZN and GOOG will lose volume pricing with their suppliers… and they will either have to take a loss/unit or increase the price of their devices.
If they were too aggressive with their price cut, they could have left ALOT of money on the table and it would be next to impossible to raise pricing in the future. so in my mind this was a very well calculated move by management to tighten the noose just enough around AMZN and GOOG and still keep their GP respectable… and leave themselves some options for the future if they got it wrong.
i know that as investors/traders we wanted the sure thing of a much cheaper iPad mini. however, that would have been short term gain for long term pain for the company. so i get the strategy… now we wait and see what the consumer decides
Now that I have become a BC member, I am schizophrenic:
(a) as a holder of a big block of AAPL common, I couldn’t give a damn about all the recent action. What I saw today was awesome — whether AAPL gets to $1000 by Jan2014 or June2014 (even June 2015) doesn’t bother me. Going from $600 to $1000 in even two years would be utter bliss.
(b) as a holder of spreads, I suddenly care quite a bit about exactly what price AAPL hits and when, and I what’s good for the long term may be detrimental in the short term.
Given that (a) is far more important to me than (b), I should be less focused in (b), but (b) is all about now. So it evokes a far more vivid response in my brain.
Well, if this was easy, I guess everybody would be doing it. The god’s demand their measure of fear and worry to succeed, is my attitude…
If you want the leverage of options or spreads but not worry about short-term fluctuations as you didn’t have to with shares … then buy only long-term spreads. I believe that is not only a safer approach but in practice yields a higher return. http://bullishcross.com/2012/10/bullish-cross-live-299/comment-page-3/#comment-78840
I love the new Jan Freakout index – Is it oversold, do we get a chart! LOL
Maybe we should start rumors that AAPL is going to announce a 10-for-1 stock split along with a dividend raise on Thursday….
Why should hedge funds get to have all the fun with rumormongering?
I think we should all raise our price target from $1000 to $1001, lets add $1 a day to it till we hit all time highs !
All jokes aside, I’m very certain Apple will split 2-1 after March. Maybe we will never see $1000 due to split, but it’ll see $550 after it !
I also love the new tab on top “don’t freak about Jan” index !!
Here is a quick look at the iPad cost: The build cost for the iPad2 and iPad3 are from iSuppli.
The iPad mini build cost is my guess.
http://www.isuppli.com/Teardowns/News/Pages/New-iPad-32-GB-4G-Carries-364-35-Bill-of-Materials.aspx
iPad2 build-cost=$245 sell-price=$399 ($154 markup or 62%)
iPad3 build-cost=$316 sell-price=$499 ($183 markup or 58%)
iPad mini build-cost=$210 sell-price=$329 ($119 markup or 56%)
Looks like $329 is a good price for the mini.