MODEL PORTFOLIOS CURRENT POSITIONS
1. The Bullish Cross Apple Model Portfolio
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2. The Bullish Cross SPY Model Portfolio
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3. The Bullish Cross Long-Term Portfolio
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4. The Apple Common Stock Model Portfolio
1. Apple Long-Term Position: 1,175 shares x $451.71 = $530,759.25
2. Apple Trading Position: None.
Cash = $588,326.90
KEY POSITIONS ON WATCH
Positions “On Watch” are those positions which we are considering. It doesn’t mean we are taking these positions for sure. We are just entertaining the idea.
1. The Bullish Cross Apple Model Portfolio
2. The Bullish Cross SPY Model Portfolio
3. The Bullish Cross Long-Term Portfolio
4. The Apple Common Stock Model Portfolio
THE LIVE BLOG 9:30 AM – 4:00 PM
4:13 AM — Yesterday I laid out a thought experiment for everyone. More of a challenge if anything. I explained how after nearly all Apple correction, Apple has restored its value as quickly as it lost its value. Not only that, I demonstrated how in the two most recent Apple corrections — November 2011 and May 2012 — the correction lasted exactly 29 days in both instances. It was an exact 6-week correction. We had 30 trading sessions on each if you count the first green day as both part of the downtrend and uptrend. So it took Apple 29 days to lose 15-18% of its value and precisely 29 or 33 days to fully recover the losses.
What I challenged our members was to explain to me why they thought “this time would be different.” Why would Apple not restore its value after this correction. The popular answer it seems is that a large number of people think its Tim Cook’s “weak guidance.”
The idea is this. Because Tim Cook gave weak guidance, Wall Street is going to expect Apple to actually see contraction in the earnings which means the TTM is going to fall in Q1. That’s even with a beat on earnings. Since that’s the case, Wall Street is going to price this into Apple’s stock today. And as a result, the stock will not recover its value. We will just trade in a range in this devalued-land of $600 a share until after Q1 and then maybe during Q2 Apple will rally. That’s the theory/fear and explanation for “why this time is different.”
So allow me to address that fear. First of all, Tim Cook guided for $52 billion in revenue. Last year he guided for $37 billion in revenue. So Apple’s revenue guidance is up $15 billion or nearly 40% above last year’s revenue guidance but its EPS guidance is down.
Now last year, Apple beat its EPS guidance by exactly 50%. It beat its top-line guidance by exactly 26%. That’s the beat that we saw last year. Do you think Wall Street doesn’t know this? If Apple beat its guidance by 50% this year, it would come in at $17.62 in EPS. Notice how right now Apple guided revenue at 40% what it guided for last year. 40% on the top-line! Do you know why it is that Apple beats its bottom-line guidance by such dramatic amounts sometimes? Has anyone figured it out yet? Because I explained it in painstaking detail last year in a series of articles that I published not only here, but at Appleinsider and Seeking Alpha.
If you remember, the reason why Apple’s EPS guidance gets destroyed is because it’s not a real guidance number. It’s not real. Get that in your head right now. Apple’s EPS guidance is WORTHLESS and MEANINGLESS. It has zero impact on anything. It is worthless because you cannot infer anything from it at all. It’s very discouraging that people don’t realize that yet even though we’ve hammered that home like crazy. Secondly, it is meaningless because Apple is not intentionally offering that particular guidance number. It’s the other line items that demands that EPS guidance number. Apple wasn’t thinking, “hey, what EPS number should we guide for?” Instead, it’s just a consequence of the revenue and gross margin guidance. It’s a necessary result flowing from the other line items in the guidance. Go back and read this article here. “How to Properly use Apple’s Guidance to Accurately Forecast Earnings.”
He’s the cliff-notes version. Apple guides for every line item. The EPS guidance number is just a summation of the other line items. But each litem has a different level of conservatism attached to it. First, we have revenue guidance. For Q1, you can expect Apple to sandbag by between 20-26%. This is a supply driven quarter. It’s going to be a 20% top-line beat. That I can almost guarantee you will be the case. Forget about Q3 and Q4. Do you not make the stupid mistake of thinking that those are comparable quarters. That would be an error of epic proportions. In fact, I’m not even going to address it because it’s too big of waste of my time to do so given that we’ve already addressed it numerous times in the past. I’m just going to say that if you compare what happened in Q3 and Q4 to Q1, then you need to spend more time understanding why drives these quarters.
For Gross Margin, Apple has consistently beaten its forecast by several hundred basis points every single quarter. The typical beat is anywhere from 250 to 600 basis-points. Read that article linked above and you will see what I mean. For OIE it’s typically $5-$20 million. It’s pretty low. For OPEX, it’s typically around $40 million. It’s also very low. Those are two normal and easily predictable numbers. Apple doesn’t sandbag by much there.
Then we have the tax rate. The tax rate is also sand bagged. We’ve seen Apple report a tax rate that was 300-400 basis points lower than what Apple guided for. Recently however, Apple has been more accurate with its tax rate guidance.
Ok. These numbers all sort of result in the final EPS forecast. But their EPS guidance is just the result of their weak gross margin guidance which they will beat by at least 250 basis points anyways. Their $52 billion revenue number will be beaten by $10 billion+. I expect Apple to come in at $63 to $65 billion.
Alright. Why is this all very important? It’s simple. Wall Street also gets this and fund managers certainly do as well. Especially fund managers that are plugging in billions of dollars into the company. You don’t think these funds have spread sheets showing how much Apple has beaten their top and bottom-line guidance by? They have their own analysts who sit around do stuff like this all day long. I listened to Wall Street analysts on the call. They are fully aware of what’s going on. So the TTM argument is a little weak in that no one expect Apple to come in anywhere near $11.75 in EPS. The consensus is even at $13.30 right now with revenue guidance at $54 billion.
Now do you know what that tells me? That tells me that many fund managers will know that Apple is going to absolute demolish expectations again like they did in Q1 2012. We’re going to see a beat of epic proportions. On the top-line, Apple is going to beat Wall Street expectations by nearly $10 billion. On the bottom-line, by $2.00 to $3.00 in EPS. But this will be largely known as the quarter progress. What’s more, Wall Street will get this. We get this. There will be a good trade on it depending on where Apple is trading at the time of the report.
But let’s forget about what is known and what isn’t known with regards to Apple’s TTM. Let’s assume for the sake of argument, that everyone takes Apple’s guidance at face value. All of that doesn’t matter. Here’s why it doesn’t matter. Because these aren’t the driving reasons for why Apple is going to rally or not rally this quarter. What you have to understand about corrections and the way stocks trend in general is that after corrections, stocks tend to rebound significantly regardless of the fundamental temperature of the company. It doesn’t matter whether a stock is trending down long-term or up long-term, after a correction, the losses are retraced. How far they are ultimately retraced depends largely on the long-term fundamentals. But at a minimum, even a total shit-bag of a stock will retrace 50% of its losses on a correction before making its next leg down.
Do you know what the difference is between a stock that is trending up and fundamentally sound versus a stock that is trending down and fundamentally weak like RIMM? It’s actually quite simple. Stocks that trend down retrace 50% of the losses of a big sell-off whereas stocks that trend up retrace 50% of the gains after a big rally.
But in both cases, whether a stock is trending higher or lower, it will retrace at last 50% of the losses in a downtrend. But a stock that is generally trending higher over the long-term will retrace 100% of the losses and actually add more gains. And that is why Apple has retraced 100% of its losses after every one of its corrections. It’s because Apple’s long-term trend is up.
Ok. So what does this mean for this quarter? What it means is this. Apple has hit the 200-day moving average. It has reached a 13.29 P/E ratio which makes Wednesday one of the lowest valuation days in Apple’s history. And Apple has had a 50% retracement of its last rally. On top of that, the stock has lost 16% of its value in 1-month.
Even if Apple was done for. Even if Apple had topped out. Even if Apple was to start a new long-term downtrend. Even in that case, Apple would still retrace 50% of those losses. A stock in a new downtrend would retrace half of the losses before moving forward.
For Apple, that would mean a rebound up to $646.00 at least before another leg down would be possible in an overall longer-term downtrend. So what I think should happen is this. Those of you who are convinced that Tim Cook’s guidance means anything should wait for Apple to have its rebound to at least $640 a share before selling. At that point, I think if you are on that side of the fence, you should sell and buy January 2014 spreads. Here’s why. At $640 – $650 a share, the January $655 – $705 spread will be trading near $20.00 a contract. You can sell that spread at $20.00 and buy really powerful January 2014 spreads that will yield 400%. Those of you who are on my side of the fence can wait for $680 where we may o may not transition out of the $655 – $705 spread down to a $630 – $680 or even the $600 – $650.
So why do I think Apple will likely rally to $700 a share despite the fact that we’re sitting here at $587, getting beaten up every day with shitty-weak guidance and no catalysts? Where will change in sentiment happen exactly?
Well the fact of the matter is that most people who are long Apple, and have any real impact on the stock know the stock pretty much as well as we do. Don’t make the mistake of thinking that the press represents the average fund manager or that the average retail investor is smarter than the average fund manager who has an investment in Apple or is looking into taking an investment in Apple. Notice how it’s all the people who aren’t in the stock who are bashing it. Really you should think about that for a moment. Those of you who think this TTM and guidance argument has any weight at all will have to demonstrate how someone in the stock today would be dumb enough to sell the stock ahead of what will likely be a huge 2013 just because of January guidance.
Everyone who has large long positions in Apple believe in the name long-term. They get where the stock is headed. Those who are interested in adding a new long-term long position and are evaluating the stock know that a 13 P/E ratio is dirt cheap long-term. For that reason, the stock is going to (a) attract a lot of interest down here and soon; and (2) those who are in the stock aren’t going to be selling anytime soon.
In fact, think of it this way. If you haven’t sold Apple on the way down at $650 or $630 or even at $610 ahead its earnings, do you think you’re going to sell now that Apple is at the 200-day moving average if you are a fund manager with a huge position? Just think about that mechanically. Who would sell down here at the 200-day moving average? First of all, it’s important to understand that the selling that you see throughout the day is largely liquidity driven. It’s not people unwinding their Apple positions but market makers creating new positions to buyers. At this point, any fund who was going to sell Apple, has already sold it. Any fund that is going to remain long in Apple is going to stay in it because they believe in the stock. By this point, the weak hands are gone. Anyone who had doubts, needed to secure their gains for the year or who just didn’t understand the stock that well has sold.
So now it all comes down to whether there will be any buying interest to push Apple higher as we head into the month of January. And what I have to say about that is this. It has nothing to do with Apple’s earnings this January. Nothing at all. Instead, it has everything to do with Apple’s current cheap valuation. Down here at a sub-13.5 P/E ratio and down here at the 200-day moving average, it does provide for a very attractive entry into the stock. Even people who hate Apple like Doug Kass can’t help but find the 200-day moving average and the sub-13.5 P/E ratio an attractive entry into the stock.
So what will it take for those on the sidelines wanting to take a new position in Apple to go in and take that position in Apple? That answer is also quite simple and the same every time this happens. The minute Apple starts to rebound is precisely when you will see a flood of money enter into the stock. The first people who step into it will do so for technical reasons which will then freak out all of the people who are waiting for Apple to hit rock bottom and that’s why we end-up always seeing an explosive rally off the lows. Funds who haven’t participated in Apple and now want to step into it for 2013 are going to do so down here at the 200-day. They just don’t want to catch a falling knife or be the first in the game. So they wait. But once they see the stock catch a bid, that’s when they start to pull the trigger. It’s fear driven.
Don’t you ever wonder why anytime Apple hits bottom it ends up rallying like 7% of the lows within a few days. That happens because people are chasing the bottom. They see a 4% up move in the stock off of the 200-day moving average and that is their signal to buy.
What you have been seeing in Apple for the past few days is clearly weakness on the part of the bears. Apple is no longer just falling off a cliff as it has throughout this sell-off. This entire leg down from the post iPad Mini introduction until today couldn’t even get Apple down into deeply oversold territory as it has in every previous leg down. Do you know why? Because the selling has been very jagged. It hasn’t been smooth. And the past two sessions clearly show a lot a pretty big battle between bulls and bears now. The bears do not completely control the stock anymore. And now that Apple is at the 200-day and now that it has hit a 13.29 P/E ratio, the bears know there really isn’t a whole lot of downside in the stock.
So that wraps up our case. Over the weekend, we will publish a BC Weekly Summery which will outline each element of the “Apple Back to $700 Case.” We will re-outline the whole thing. It will be up to each of you to analyze that evidence and then arrive at your own determination as to what you think will happen. You don’t have to rely on my judgment. I can tell you right now that Bullish Cross won’t be issuing a sell on the $655 – $705 spread until Apple is near $720 a share in January or unless I feel like Apple has struggled with $680 a share and appears that it will likely re-test the $650 level. That could very well happen. Those of you who think Apple isn’t going to rally because this time is different — just like those of you who didn’t think Apple would have a correction during the parabolic rally believed that time was different — you can go ahead and sell your spreads on the snap-back rally which you would get even if Apple did end up sitting down here. At a minimum Apple will re-test $650 before December. If that happens, your $655 – $705 spread will be at a reasonable price level. Sell it then. Roll it into 2014′s. It’s that simple.
The last thought I want to make here is this. Some people here are a going a little too far with their doom and gloom, and it’s really just making other members anxious. We’re going to start putting in temporary bans on some of you if you continue down that line. Please read the Comment Section Rules very closely. Over the next week, we will be strictly enforcing these rules to reduce the negative sentiment on the board.
Also, we probably won’t be posting much tomorrow either. Really, when it comes down to it, I strongly feel Apple is literally in its last innings of this downtrend. Apple at $587 a share put the stock at a 13.29 P/E ratio which marked the 5th valuation day of the year. In May, there were four sessions where Apple traded at a lower valuation and immediately bottomed after that. In November 2011, there were only three sessions lower than that and they were pretty much comparable — 13.25, 13.22 and 13.13. I don’t January because Apple’s P/E dropped as a result of compression and the stock immediately took off to correct that compression. It was a lack of response on earnings that cause the low P/E numbers at the time. So if you discount what happened there, then what we saw on Wednesday would be fall in the top-10 lowest valuation days in Apple’s history.
During the financial crisis, Apple’s P/E ratio hit an absolute low of 14.56 on a GAAP-accounting basis. And let me be clear about this. No one had much of an understanding of Apple’s adjusted earnings at the time. In fact, the company didn’t even start giving out adjusted earnings until fiscal Q1. So those P/E variables were real. Apple never really fell below a 14.56 P/E ratio during the financial crisis. Now after the company went back and adjusted its earnings to reflect the changes in subscription accounting, Apple’s P/E ratio after the fact was down near the 11′s at the lows. But that’s really meaningless. Because you have to keep in mind that the valuation that everyone including traders, the press and the general public had was the GAAP-Based P/E ratio. And do you know how I know this to be the case? It’s very clear that Wall Street traded Apple at its GAAP-based P/E due to the fact that Apple’s price-to-cash ratio was the lowest on Wall Street. That told you that the stock was understood to have a 14 P/E ratio at the time. Anyways, the point I’m making here is this. Wednesday’s action is arguably the 8th lowest valuation day in Apple’s post-iPod modern history. Since the revival of Apple, Wednesday was the 8th best buying opportunity in terms of valuation. So right now, I know Apple is at the lowest-end of its trading range and I’m just sort of waiting patiently. There really isn’t a whole to do or say right now. I’m merely just waiting for Apple to begin its rebound and then I’ll will step in and give guidance on the rebound. For now, I’m probably going to take it easy on Friday. You should do the same.
9:55 AM — Just an FYI, if Apple ends up closing near $595 again today, it will be terrible news for the bears. That would make three range days with small reversal consolidation bars. If we get another DOJI today it won’t be good. The general tendency is to see a very green bar on the fourth session. We’ve seen this type of action both at tops and bottoms multiples times on Apple. Remember back to the $547 top we saw during the parabolic rally. The buying slowed down dramatically and Apple had two DOJI and a black bar. We went short via Apple put spreads which both paid-off as Apple tanked to $519 from there. Well we have what appears to be the same set-up, just on the downside. We had this set-up over a 5-day period at $700 a share and again near $570 post-Q3 earnings. A $595 close today would do it:
10:01 AM — Also, I should add it’s important for Apple to form a double-bottom of some kind. Even though it’s a small set-up, it’s still very much important. In most cases, that’s how these bottoms happen. It may be a small double-bottom but that right there could be enough to spark a big rally in the stock. Think of it as a small seed. So this push down toward $587.00 makes for a good double-bottom set-up.
10:40 AM – down at $590 a share, Apple’s P/E set another very low print at 13.35. It’s sitting at 13.37 right now. These are very low valuation days for Apple historically speaking. This suggests to me that these days are consolidation ahead of a bottom rather than consolidation ahead of more downside.
12:01 PM — here’s the key things to be looking at in today’s session. These are the most important factors for today specifically. So please focus on this and don’t get lost in the poor price-action. So here are the relevant issues:
(1) Apple is at a 13.34 P/E
Apple is trading at a very low valuation. It’s in fact, one of the lowest valuations in its history. We’re talking a top-10 since the advent of the iPod. That’s how low we are right now. In every previous case, whenever the P/E has gotten this low, it has meant a bottom for Apple is around the corner. A mere days away.
(2) Apple’s 14-Day RSI is sub-33 now
We still haven’t had that extremely low RSI close for Apple yet. Right now, it’s trading at 32.90. That’s pretty low, but not extreme relative to those past 2-3 cases we had where it hit 30. See below:
(3) Apple is at the 200-Day Moving Average
We’ve already explained this ad nauseam now. Every time Apple has reached the 200-day moving average — whether it has fallen below it or just closed right above it — it has meant a bottom for the stock. Not only that, it has also lead to a short-term rebound. That is because of the fact that (1) Apple being a fundamentally sound company respects the 200-day moving average and (2) reaching the 200-day usually means there was a pretty hard sell-off to get there and a rebound is due; and (3) funds use that as a key entry point to take a long-term position in Apple. See below:
(4) Apple @ 20M Chaikin Oscillator
Apple closed near the -20M Chaikin Oscillator point on the daily chart. Whenever that has happened, it has lead to a 5-10 day rebound. Notice sometimes the response is delayed. It happens both on the 60M chart and on the daily chart. We get a delayed response quite often. In this case, it is about 5-6 session delayed now. But we’re still right near the lows:
(5) Apple 7-Day RSI at Extremes Now
There is no two ways about it here. Apple is extremely nuts oversold on the 7-day now. And it hasn’t seen a full rebound yet. Normally, when Apple reaches such extremes you tend to see a big rebound at a minimum before it gets back to the low-area. We’ve been sitting in the low-range for a month now. That’s too much:
(6) Down 10% in 11-Day too Extreme
Apple has lost 10% of its value over the last 11-days. It is also down 8 out of the last 11. That is far too much selling pressure in the near-term over nothing. That’s far too much selling pressure over the past 11-days. I suspect Apple fully recover that over the next 11-days. This last leg down will be v-recovery erased. These types of steep sell-offs are unsustainable and are generally very quickly reversed. Just like when you see a sharp down on the hourly. You tend to see a reversal of that. Notice this down 10% over the last 11-days happened after Apple was down 13% over the preceding 18-days. In between that, we only saw a 4% bounce. That’s far too much without a sufficient bounce in-between. This whole sell-off feels like it will be completely reversed with a v-recovery. If this was a fundamentally driven sell-off, it would be a slow and orderly downtrend. That’s not what we have here. If Apple kept this pace of selling pressure, it would be down $420 by the time we hit January. That should tell you why this type of pressure is not sustainable at all. But if it slows, then the momentum will have shifted and then Apple would enter a v-recovery. Apple doesn’t trade sideways. Like almost never. And when does do so, it’s typically after a long rally.
(7) Correction Duration: 27-Days
Finally, as long as this correction may have felt, it really isn’t that long. This correction is just now finally starting to get close to the duration of the May correction and November correction. Those corrections were both longer than this one and essentially the same size as this one. You just forget because everyone has a short-term memory after a stock bottoms and then rallies. The same doubts that exist today, existed in May and in November. This correction has now spanned 27 days. If the market was open on Monday and Tuesday, it would have been 29 days (or 30 depending on when you consider the sell-off as beginning).
Now why is this important? Well because there may be something to the psychology of a correction that makes Apple investors give up all hope at 6-weeks. The market is going to do everything it can to shake everyone out. We’re talking option holders, and common stock holders. Look at the option premiums. They don’t even make sense. The only reason they are at this level is because everyone has given up hope. But they are radically undervalued here. The $655 – $705 spread should be no less than $15 down here. You shouldn’t be rewarded by more than 200% if you get this call right. Because really, the obvious move from here is back up to $700. But the market is doing this to shake you out of your position. They want everyone to “oh shit” themselves. That’s why the premiums are so low. And if no one sells, the market makers will eventually get their asses kicked. They can only keep this up for so long and then they will have to call it. Right now, they’re probably saying “what the HELL is going on?!?!?!” I’m sure there are a lot of pissed market makers right now.
Think about it. If you give up right here and sell your $655 – $705 spread, who the hell do you think you are selling to? Another buyer? No! I really hope you don’t think that. If you sell any spreads today, you would be selling directly to a market maker. And so tell me. What do you think a market maker is going to do with that spread? Do you think there is liquidity out there to sell 10,000 contracts to someone? To people like you? No man! They have to try to package and sell them. But the reality is, they are more likely to hedge out or manipulate the stock upward.
Right now, I can ensure that my positions would close in the money. Do you know how? If today I issued a sell recommendation and everyone at Bullish Cross gave up and threw in the towel and sold all of their $600 -$650 and $655 – $705 spreads, do you know what would happen? Apple would absolutely skyrocket. That’s what would occur. In fact, it would pretty much ensure that Apple closes at $705+. Because now there is no one helping the bears out. It’s all in the bulls court.
I’m pretty sure a big reason that Apple hasn’t bottomed and rebounded yet has to do with the fact that Apple investors are getting smarter. They’re starting to realize that they need to hold through these corrections. And that means market makers are going to have to put us through the ringer even more. But they only have so much power.
If they drive Apple’s stock down too much in an effort to try and shake everyone out of their options position, it could backfire in a major way. How? Because what will happen is funds will start to find Apple attractively valued which will bring big money to the table. And when that happens, the Hyenas get rick-rolled by the Lions. That’s basically it. Like think about it. If none of us sell down here and the market makers try to take Apple down to a sub-13 P/E, it’s going to backfire and they lose. Big money comes in, Apple skyrockets off the lows, momentum comes in and they get steamrolled up to $700 a share.
If that happens, what do you think they will do next time? I’m pretty sure you will see a lot more hedging out of positions. Meaning, you will start to see a whole lot less manipulation and dramatic corrections. I bet these assholes thought they had you. They probably orchestrated this whole thing from $700 a share and thought they were so smart. Yeah. Let’s see how that goes when they don’t shake anyone out. That $600 – $650 and $655 – $705 is all us. You guys stick with the plan, and you will stick right to them.
This dynamic I’m sharing is very real. Market makers play a different roll than Wall Street firms, hedge funds, mutual funds, government and sovereign wealth funds, pension funds, momentum traders, short sellers and retail investors. These are very much different groups of market participants who have very different motivations. A mutual fund doesn’t care about options expiration. They only want to get in for the long-term. And what typically happens is money flows to a mutual fund and that mutual fund flows that money into stocks.
Hedge funds tend to get their capital investments at the beginning of the money. So if a fund is eyeing Apple right now, and they just got an influx of $50 million, they could be getting ready to put that to work. That’s why you often see the markets go up huge on the first of the month.
I think right now, that buying interest is going to be delayed until after the election. What’s interesting about that too is that election day happens to be day 29 for Apple. Coincidence? Anyways, the point that I’m making here is this. There is very little downside left in Apple. Like even if the stock were to lose $590 support or lose the 200-day or break to the downside in some way, what then? Think about that.
Suppose Apple loses the 200-day moving average. Which by the way, isn’t a big support line in and of itself. The 200-day just represents the idea that a stock is very oversold at that point. Whenever a stock visits the 200-day, it’s oversold. That’s very simple to understand. So the 200-day’s importance is not in its support presence. It’s in the idea that the stock is severely overdone to the downside. That’s it.
So suppose Apple loses that level. I would ask, “then what?” Apple is sitting at a 32 RSI right now. If the stock fell to $685, that would put Apple at a 13.25 P/E ratio. What is being gained exactly? The downside is sincerely very limited here. In the absolute worst case scenario, Apple may fall to $574 as I noted after earnings. That would take Apple to sub-13. Do you know what has happened every time that has occurred. Apple has bottomed on the very session it has happened. Every time Apple has come down to 13.1 or 12.9 or 12.7, it was that day that bottomed the stock. It may have traded at 12.xx for one more session, but that has typically been on the way up.
Thus, the takeaway you should have here is this. There is no downside left in the stock. There are certain levels that the stock simply won’t visit anymore. You’re not going to see Apple visit the $400′s ever again. It’s not going to happen. Not even if there was a market collapse. Not even after Apple reaches its peak in growth. It will never visit that area ever again.
And what’s more, each point you go below $590, approaches that murky line of reality. It is somewhere between $590 and $570 to be honest. Somewhere in that area, there is a line that Apple will never see ever again. We just don’t know for certain exactly where that line is. But it is certainly there without any doubt.
So why is that important? It’s important because there is no set-up that the bears can do right now to lead to further downside. Now in the same way we just saw from $705 down to $587. That type of selling pressure is over. That selling is done. Not gonna happen anymore. Right now, this is all market maker f’ing with you. That’s it. They want your contracts ahead of a huge bounce. They need your contracts.
These factors apply to the next few days. Don’t forget that just 10-days ago Apple was at $650 a share. It can very easily get there over the next 10-days.
1:00 PM — So just to give you a sense of how irrational the market is, January expiration is roughly 58 days from now. But the $655 – $705 spread is at $6.00. That would give you a near 10-bagger. But it is not 10-1 against Apple going to $700 a share. What’s more, on just the rebound up to $640 from here, that spread will go to near $20.00. That means it will go up more than 3x just on the freaking rebound. That’s called extremely irrational pricing due to poor sentiment and market makers wanting you to sell them at extreme lows. I tell you what. I think there is a high probability that they will be worth 3x in 10-days. Within the next 10-days, they will sell for $18.00.
1:17 PM — Apple has briefly lost the 200-day moving average. It feels like De Ja Vu. We’re at Friday at 6-weeks and Apple has fallen under the 200-day moving average. That’s precisely what happened on Friday, November 25, 2011. The stock sold-off for 6-weeks and closed under the 200-day moving average at $363 a share. After that, the stock rallied 77% straight without a pull-back. The 200-day was at $366 and Apple closed $3.00 below it. What’s more, the RSI is now getting near sub-32.
1:35 PM — Apple’s correction has now reached 16.80% exactly. That is versus the 18.94% correction we saw in May. So it’s still about 2% smaller than the May correction at this point. However, that being said, we’re starting to see the same sort of things we saw in May/November. Just now it’s finally starting to get there. Also, technically speaking, Apple has still held above Wednesday’s low. Until we get a breakdown, it’s still a double-bottom set-up here. If Apple rebounds back up to $595, then a double-bottom set-up is squarely in play. Let’s see how things unfold from here. It’s getting pretty important now. These next few hours will be crucial.
2:25 PM — Apple is capitulating now. So let it be. Remember our comments about $574. I think we may end up getting $578. But that’s about it. I think Apple is capitulating today. We are finally getting all of the necessary points for that. And it’s happening on the same exactly time-frame as we’ve seen every other capitulation/bottom. We are a little below the lower b-band. We are 5-points below the 200-day moving average. We’re at a 31.00 RSI. Finally, Apple’s P/E ratio is at 13.18. These are the extreme lows that we’ve seen at the bottom of every past correction. Especially the P/E ratio and sub-200 day moving average. This is just like November 25 of last year. We’ve seen this before.
2:42 PM — Alright. All things being equal, today has the highest chance of being bottom. Much higher than any other day. Higher than the bearish engulfing candlestick or the double-bottom set-up. We finally have all of the extremes we want on the daily chart. We have everything in our corner now. That’s three corrections where things came down to a low 13 P/E, which resulted in a 17% pull-back and which had a similar set-up. To be honest with you, this is where we should be publishing our buy ratinga and we will not publish another one unless Apple is at a 13.10 P/E ratio minimum. Also, it is now clear what will tend to lead to a correction of this magnitude instead of just a simple pull-back. It’s clear that once Apple visits a 16.5 P/E or anything in that high 15′s and when Apple’s P/E doesn’t compress enough to bring it down to the low 13′s after earnings, you’re going to see a correction of this magnitude. We have a lot of data points in support of that now. Apple coming down to a 13.1 P/E for a third time in the past three corrections is a clear trend. We’re going to see this same exact correction again. Next time, you want to step out of Apple completely at a 15.5+ and wait for a 13 P/E before buying. Let the parabolic rally go. Just wait for a 13.1 P/E. That’s what these three corrections have told us. Sell at 15, buy at 13. Apple is capitulating here. I’m fairly certain of that. We finally got our ripped-off band aid.
3:00 PM – As we head into the last hour of trading, let me just say that you want today to happen exactly as it happened. If you asked me this morning whether I would rather have Apple down $10.00 over the next 10-days or $40.00 today, I would take down $40.00 today every time. Do you know why? Because once Apple bottoms, it can start rallying. Once it starts rallying, it’s a non-stop freight train. It can fall $40.00 today, bottom, and then recover that $40.00 by Tuesday. And then 7-days later be at $650 a share. Compare that to down $10.00 over 10-days, we would be at $580 a share 10-days from now. So today is a good thing. I tells us that everything I’ve been laying out for you is real. Why? Because we’re getting capitulation exactly as it should happen. We want a 30 RSI close. We want Apple $5-$10 below the 200-day. We want a sub b-band close. We want the P/E to get down to 12.9 to 13.1. And we want that all to happen on the same day. That is capitulation. Now Apple has roughly 60-days to recover. I will take that every time. You will see what I mean by the end of November. Today will be a distant memory.
3:25 PM — Alright. Apple is not bitching out. Finally! I hate this whole b.s. of the damn stock rebounding off the lows. We’re going to get our 30 RSI finally! And we may also get our 12.9 P/E ratio as well. Remember, in these situations you want Apple to either close at the lows of the day or on a huge bullish hammer. What that means is either we close within $1-$2 of the lows or Apple catches a bid and rallies $20.00 off the lows. Both scenarios would bottom the stock. I’m 90% certain of that. And Apple closing at a 30 RSI here + a 13.1 P/E = a bottom. I’m 80% to 90% sure of that. In rare occasion, we may see a little more selling.
Actually, I think on Monday, it would be very logical for Apple to hit $570 a share. Doing so would make this a 100% retracement of the July – September rally. And it would be a 68.2% retracement of the entire May 18 to September 25 rally. So that is a possible target. Just like in November, a possible downside target was $355 — a key area of support — in this current case $570 is a potential bottom given the high level of support.
Right now, Apple’s P/E is at 13.11. That’s very close to the low print in May and under the low print in November now. All three bottoms seem to happen on the same exact day. Friday exactly 6-weeks after the correction began. Right now, Apple is at a sub-30 RSI on the daily. So we’re going to get that indicator:
3:45 PM – so far Apple has hit $576.12 at the lows of the day. That puts Apple at a 13.04 P/E ratio. Apple is $2 – $3 away from falling under a 13 P/E. That’s pretty close to extremes on the valuation now. Apple’s 7-Day RSI has now hit 21. That’s a huge extreme. Apple’s 60M RSI has hit 23 and its 14-day has hit 29.4. We’re extremely oversold on all levels. The Chaikin Oscillator has hit -3.4 on the 60M and finally the daily Chaikin Oscillator is at -19 now.
4:01 PM — Alright. We got what I sort of wanted in terms of extreme technicals and extreme valuation. First, the 14-day RSI closed at 29.73. That is a sub-30 close. I think quite possibly the first in Apple’s post-crisis history. Secondly, we got a low print of a 13.02 P/E ratio at a $574.75 LOD. We have Apple closing at nearly $12.00 below the 200-day moving average. We have Apple closing at a 22.14 RSI on the 7-day. We have Apple closing at a 24.17 RSI on the 60M chart. We have a -3M Chaikin Oscillator close at on the 60M chart. Which is technically considered an extreme low. We have Apple closing at an 18.4 Chaikin Oscillator on the daily chart which is close enough to the extremes. But not quite there. Apple also closed about $6.00 below its lower b-band. Everyone is bearish right now and I’ve been textbombed the sentence “is this time different.” No joke. That’s coming from multiple people. People are doubting whether this is capitulation is the necessary element for capitulation. Apple has likely bottomed and we will have a report outlining all of the extremes. Because there is a very compelling case to be had now. I think it’s possible that Apple might close up $30.00 on Monday to $610 a share. Either that or we may get a small green day followed by a +30 on Tuesday. Whatever the case may be, Apple will soon rally to $635 and then to $650 in a very short time-frame. I did mention the terms “$574 capitulation” multiple times. That was always one way for it to happen. Sometimes we just need a violent bottom. And that’s precisely what we had today. A very violent bottom and capitulation.
4:45 PM — Last comment for now. We may come back later this evening and this weekend. But I want you to go back and read every BC live for the past 5-7 days. How many times does the price $574.00 show up? For those who have macs, press Command+F, and then put in “$574.00″ in the search engine. Look at Apple’s lows of the day today. Do you find that odd? Things aren’t as disorderly as you might think they are.
10:40 PM — I’m pretty sure Apple will see a pretty big recovery next week. In fact, I think the whole market will after the election. But to be honest with you, I cant’ really keep doing this. I don’t think I want to go through another rebound, recovery and correction trying to convince people this time is not different. It’s too exhausting doing so. For that reason, in the future, we’re simply going to lay out the case once. We’re going to compile it in one report that people can always reference. And it will be up to you to evaluate the evidence. But I can’t just keep assuring and then reassuring literally everyone. I have to do this with not only people at Bullish Cross, but with like 70 people outside of Bullish Cross. ‘How do we know this time isn’t different? What if Apple continues to go lower? What if Apple continues to sell-off even after hitting a 30 RSI?’ If I have to respond to that one more time, I swear I’m going to tie my MacPro to my ankles and toss it off the Vincent Thomas Bridge. The Golden Gate Bridge is too far away. Vincent Thomas will do the job.
It’s the crossing of all of the indicators at once that makes this a compelling bottom. And Apple closing $7.00 below its lower b-band compounds all of the evidence or enhances it like 10x as much. It would be compelling enough with Apple at a 30 RSI and under the 200-day. But add a $7.00 close under the lower b-band and it makes it on the order of 3-4 times more compelling.
The other thing I can’t stand is sitting there warning people for like 7-days in a row that Apple may need to go down to test the $574 area and then reading people’s responses as if this is something out of the ordinary. IT’s not out of the ordinary. I explained why it’s not. Apple is not trading at a 11 P/E ratio. That would be out of the ordinary. It’s not trading at a 22 RSI on the 14-day. That would be out of the ordinary. It’s not trading $50 below the 200-day. That would be out of the ordinary. The correction hasn’t lasted 50 days. That would be out of the ordinary. Apple didn’t close $30 below the lower b-band. That would be out of the ordinary. It’s not a parabolic crash or “out of this world.” Apple’s P/E ratio hasn’t fallen out of its range and this correction isn’t anything different than every past correction.
In fact, it’s exactly the same as every past correction. In April, Apple topped at $644. Exactly 29-days later, Apple hit a low of $522. That is a $122.00 correction. That’s an 18.94% sell-off from peak to trough over a 29 day period. This correction has lasted the same amount of time. Apple topped at $705 and hit a low of $574.75. That is a total of $130.25 to the downside. But from a much higher level. Thus, Apple has lost 18.47% over roughly a 27-day period. How is this correction any different than the one in May? It’s exactly the same. The duration is the same. The point loss is the same. The percentage loss is the same. The valuation is the same. The oversold conditions are the same. The fact Apple is below the b-band is the same. So what the hell about it is different? Nothing!
Also, the way Apple bottomed is the same. In the closing days of the bottom, Apple’s RSI fell to 30. Apple sold-off below the lower b-band. Apple’s P/E ratio fell briefly under 13 for 1-day. Here, Apple’s P/E ratio has closed at 13.06 making it one of the lowest P/E closes in Apple’s history. And it hit a low of 13.02 on the day. One of the lowest prints in Apple’s history.
The point is this. I don’t want to have to do this again. I had to do this during the last parabolic rally and during the November and May correction. I hate having to spend my time assuring and reassuring people or having to repeat myself 30 times. It’s not fundamentally driven. It’s not because of concerns about the iPhone. It’s not because of earnings guidance. It’s not it’s not it’s not. That gets really annoying very quickly. So much so that it just makes me want to retire and run my own account. Like why the hell do I need this stress? I for one feel confident in the analysis. So why do I have to spend time trying to convince 800+ people of that? I can just deal with my own drawdowns, hold through the bullshit patiently and capitalize on the spread.
Part of holding a spread until expiration requires you to have to go through corrections. Do you think holding 2014 spreads is going to alleviate you of that? Hell no. You’re going to have to go through this at least two times by the time we hit 2014. The same sized correction with the same garbage sentiment with the Doug Kasses and 500 Seeking Alpha articles explaining that Apple topped. You need to do your own analysis and make a determination of whether you think Apple is sound enough to hold.
Once you come to the realization that Apple does not trade on fundamentals near-term, you will hit enlightenment. You have to truly believe that is the case. If you don’t, then you will be stuck on this bullshit about will Apple bottom now that it has hit a 30 RSI. Go through enough correction and you will realize that.
I became pretty apparent to me that Apple doesn’t trade on its fundamentals back in 2006 when the stock topped at $86.40 and then sold-off for 6-months for no reason at all. The company was firing on all cylinders and yet the stock kept selling-off. Until finally hit $50.00 a share in July and then decided to rally 100% by January. And there was no rhyme or reason to any of it. Apple is not selling off right now because of supply constraints, because of growth concerns, because it missed on earnings or any other fundamental factor. Smart money knows what’s coming next year. They know that. You think you’re smarter than those who were Valedictorian’s of their high school, excelled at Harvard in undergrad, attended Wharton for grad school and now have their CFAs? You think they don’t know what you know about Apple next year? They know.
So weak guidance no weak guidance. It’s all b.s. Apple trades in a cycle. That is clear. Apple is going to $1000 in the latter half of next year. That is clear. It has more than one indicator which in the past has been 100% successful in not only forecasting a bottom, but that has lead to huge rallies. Apple hitting a 30 RSI has lead to huge rallies. Apple falling deeply below its lower b-band has lead to bottoms and major rallies. Apple falling under the 200-day has lead to major 20-40-60-80 day rallies. Apple falling to a 13 RSI has lead to a major bottom and humongous rallies. So you have multiple indicators — both fundamental and technical — all pointing to the same thing. The seasonality also confirms it. Seasonality is different than technicals which are different than valuation indicators. They’re all pointing in the same direction.
Now is it possible that all of this fails? Yup. The possibility is always there. Every time Apple hits these indicators, there is a possibility that it doesn’t work. But that is part of investing. There is no riskless scenario. It doesn’t exist. It’s just up to you to decide whether you think the evidence is powerful enough to justify the risk. In this case, I personally think the evidence is powerful enough to justify the risk. So it is possible that Apple won’t trade at a 15 P/E ratio this quarter? Yup. Is it possible that Apple could trade down to a 12 P/E ratio this quarter? Yup. Is it highly possible. Nope. Is it probable. Nope. If you want to be preoccupied with the “what if’s” then be preoccupied with them. Sell your positions if you want. But I’m done with this B.S. Really. I’m done.
Next time, I’m going to post it on one page and refer to it. Someone asks “what if XYZ,” I’m just going to post the link. What if this time is difference because ABC —-> link. What if Apple falls to a 10 RSI —-> link. What if Apple just continues to trend lower ——> link. That’s how it’s going to be next time.
We will post the full report this weekend. It’s very compelling. The only things that are missing here is the lack of an oversold $NYMO, the lack of an oversold and bottoming market, the lack of the Chaikin Oscillator and a few other things. The only thing that worries me is the fact that Apple bottomed too early in the quarter. Normally, the stock bottoms like this around the last week of November. So we’re sort of a month early. That does make me uneasy. Because what if Apple does need to follow the seasonal pattern. If that’s the case, then we may not see a bottom until late November. But is that a bad thing ultimately? Nope. Why? Because Apple recovers in less time. It doesn’t 60-FREAKING SESSIONS!!! Not even close. Not by a long-shot. Apple only needs a fraction of that. In fact, Apple only needs 30 trading sessions to get back up to $700 a share. And that’s for real. 60-sessions is a very very long time. Too long in fact. If Apple gets up to $700 in the next 30 sessions, I’m probably going to sell. Because I think we could end-up seeing the same thing that happened last quarter happen this quarter. We have a very long quarter ahead of us. I can see Apple rallying to $700 a share, forming a double top and then selling-off ahead of January earnings the same way it did this quarter. But take a look at the chart below. This is a rendition of what I think could possibly transpire from here. In fact, I think there is a very strong case for this outlook:
Notice how natural the rebound is here. This rebound could easily take Apple up to $680 within the next 10 to 13 trading days. That’s how these rebounds usually go. You can see that this scenario looks very natural. That’s because in most cases, Apple doesn’t take 60-days to recover. In most cases, it takes 30 maximum. A lot of times most of the recovery happens over a 10-15 day period with consolidation and small progress thereafter. So don’t be surprised to see Apple back up near $680 within two-weeks time. But if that happens, then January spreads will be at risk. Why? Because it’s too soon with too much time left on the clock. I would be inclined to sell.
Let me just add one thing here. You see the first part of the rebound? That’s very likely to play out. It’s very likely that once Apple has its first big up-day which will probably be something on the order of like 4-5% in 1-day, we will then see heavy follow through. Don’t be surprised to see Apple at $650 within 5-days. That’s how these things go. The first day Apple might get back up to $600+ a share. Maybe on Monday Apple has a black-bar solidifying the bottom. The next day — election day — we may see Apple rally something like $30.00. Suppose Apple closes at $580 tomorrow after a gap-up to $584. It would form a black-bar. Then from $580, you can totally see Apple have a +$30 day. The way that +30 day would unfold is a slow steady rebound up to $600 a share which then results in a strong close which pushes Apple up to $610. The next day Apple will then gap-up to $617-$618 and sell-off to close the day -$2 to -$3. That’s when everyone thinks the sell-off is on again. Until the next day when Apple opens flat but then closes up $20.00. It goes from $608 to $628 a share. Then over the next 3-sessions, you would see multiple green days of +7, +10, +8 or something like that. Apple would go from $628 to $635. Then to $645 and ultimately to $652. That’s how Apple moves up to $650 within 6 or so trading sessions. By two Monday’s from now, we could see Apple at $650 a share. From there, you could imagine a pull-back to $623 which ultimately then results in a breakout above $650 up to $680. And that’s where things get very hairy.