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
Please see the 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
9:45 AM — good morning. So I decided that there’s no point sitting every every day worrying about where and when Apple will bottom given that (a) I know it will bottom; (b) that this won’t be too far away given how oversold we are and (c) that Apple will see a massive rebound as a result. Partly due to valuation reason and partly due to the whole equal and opposite reaction that I’m expecting out of the stock. Also, we have no precedence for Apple just continuing to go lower or just trade sideways for three months. I see all types of theories and ideas posted in the comment, none of them very good, but I’m going to recover my assets the best way I know how so as to position myself to best capitalize on Apple next year. All I can do here is tell you how I plan to do that. Take it or leave. You can sell today down here at a 27 RSI and roll over to January 2014 spreads and I’m pretty certain there are so many different spreads out there that would lead to a full recovery and then some. But that means you will not only forfeit any chance to make a profit on Apple when there are huge opportunities to do so. So do what you like. I’m waiting for Apple’s rebound which I’m fairly confidence will be very significant. But “what if” as you please. That’s my take. Right now, you can sell your spreads and buy January $9000 – $1000 spreads. They will do fine. You may even get a 50% gain out of it overall.
10:35 AM — This is a full blown crash in Apple. A big concern with Apple that is pretty apparent now as always existing is the lack of knowing that that nearly 90% of people holding Apple have on the company. Most simply just don’t get the fundamentals. So they end-up buying into the “top theory.” The selling that we saw last week has precipitated a lot of fear which has in turn precipitated the selling which has precipitated even more selling. It’s now quite vertical. The selling is straight down at a 90 degree angle. The technicals are obviously off the charts extreme. But that doesn’t really matter now with the stock in full blown crash mode. It is setting up to present a 2009-type opportunity again. Why now? Who knows. It starts with a bunch of fucking idiots deciding to publish a bunch of bullshit on the company which thanks to free speech allow anyone who can type publish whatever unfounded garbage they want to write. But now we have a precedents for what happens when sentiment gets out of hand. That will always be there on every correction. The difference is that in every normal cycle, the sentiment sort of slows down as the stock reaches valuation and technical extremes and the people buy. Here are the technicals today:
Apple hit a 17 RSI on the 60-minute again which tends to suggest a +20 move. I don’t know what good that will do for us here in this environment. The Chaikin Oscillator is at -25 on the daily. But that doesn’t seem to matter. The 14-day Chaikin Oscillator has fallen to 25. But again, so what? Apple is down $100 in 11-sessions. It is down $160 in 33-sessions. That’s a crash. Anyway you look at it. It’s way too much. And everyone is now hyper negative on the stock all based on highly unsubstantiated rumors that even if true, wouldn’t justify such a move down. Consider even if Apple had production delays, it would merely only push out earnings to fiscal Q2. That’s the worst case scenario. So how does that impact annual EPS next year? But it is what it is. If this selling pace continues, Apple would be down to -$50.00 a share in the next 4-weeks.
11:52 AM — Apple is sitting at a 22 RSI on the 60M chart which is an extreme short-term indicator. It has meant a +23 rally in the past. Hurray, we will be back to where we were mid-day yesterday. Basically, at this point, if you want a fleeting chance of being saved, Apple needs to hammer today. That’s plain and simple. Either today is capitulation or it’s just one of a number of days where Apple is crashing for no fundamental basis. So let’s see what happens. I will be not even 1% happy with anything less with a close in the green today. Anything short of that is total garbage.
12:22 PM — Alright. This weekend I’m going to put together a report for getting back to event as it were. Don’t think that the most damaging part of this correction is due to the huge drawdown and probable losses. What really sucks about this is you won’t be able to capitalize on Apple in 2014 as much as we could have without this correction. I’m going to put together a good plan for getting everyone up 100% overall from their original entries. What really pisses me off most about all of this is that it’s fucking morons of epic proportions that has caused this to come to pass. It’s people not knowing a godamn thing about the company or about financials in general or about investing period that has caused this type of selling to occur. Really annoying.
Look. Next year, Apple will run to $1000 a share. There are a lot of reasons for that. I’m going to talk to Horace today and we may co-author a piece on this issue. What that means is that there will be an opportunity to make 20x on the $900 – $1000 spread. In fact, I believe there will be an opportunity to do better than that. There will be a point of exit next year which will allow you to trade out of that spread, wait for a pull-back and then get back in.
You just need to freaking listen to me next time when Apple gets too overvalued and allow it to parabolic away. This consequence that we have in front of us right here is largely due to the fact that Apple went parabolic in January, I advised people to stay away from it and then got hammered huge. I couldn’t afford to do that again. Advise people to get out and Apple continue to an 18 P/E ratio.
I will also explain why it is that this correction has taken us completely by surprise — and trust me it has — why there was very little evidence of it and how we will avert this in the future. Look. Even some of the best most well known traders I talk to every day over text was blindsided by this correction. All of those imbeciles that were arguing that Apple was going back to 500 and are now gloating are really lucky. That’s it. And while it is better to be lucky than smart, to be honest with you, in the long-run, that won’t be the case.
Like this full fuck-tard arguing that Apple is going tback to $430 doesn’t even realize how much cash Apple has on its balance sheet and how much cash it is expect to earn next year. Do you know how incredibly dumb that is?
We’re going to need to roll to 2014 spreads. We’re going to need to be very smart about it. There are two strategies that we will employ next year. We will publish both at Bullish Cross. There’s no point in keeping it secret anymore. One has the potential to produce 32x and the other 25x. But again, they will have to be executed very carefully. What’s more, you are going to have to be extremely nimble and extremely patient.
This is 2008 all over again. Those who were smart were able to recover from it. We will recover from it here at Bullish Cross. You will see an amazing story when it’s all said and done. I promie you most of you will be part of an amazing story. It’s just unfortunate because there was huge opportunity next year and now that will have to be used to recover gains rather than to capitalize on gains after doubling our money on January spreads.
We’re still going to wait for a bounce to exit. But when we do, we will invest in two different plans. Look. Don’t go off and do your own thing. Follow the Apple BC Model Portfolio. We will have to do this carefully. And we can’t all take the same positions. So I will be giving ranges of spreads to consider. But be patient. Once the dust settles, I will get us there. We will reset and start over.
We will publish our plans this weekend and next week. This recovery plan is going to be built exclusively in the BC Apple Model portfolio. We’re not provide commentary or give any advice beyond that.
12:45 PM — the first part of the plan is to sell our spreads at the best possible price we can. That will mean waiting for a rebound. Don’t forget how much time we have in front us. It’s a very long time. We still have 47 trading sessions until expiration. Even if Apple were to rebound 15% over a 20-session period, first that wouldn’t even be that big of a rebound considering the size of the collapse and we would get into the $635 -$640 range. I think we could see the low $600′s early on in the early. Early enough to give us reasonable pricing on our spreads while at the same time keeping 2014 spreads extremely depressed. It will also make April, July and October spreads really depressed. But right now, you could do nothing but wait. If we had less time, I would transition here. But we still have the equivalent of an entry in trading terms.
12:47 PM — second part of the plan is considering the merits of trading quarterly spreads throughout the year with a 50% allocation and 2014 spreads with a 50% allocation. Doing so will produce huge results. With the right 2014 spreads, you could end-up producing 20x and with the quarterly allocation, a compounded return basis has the potential of returning 32x over 5 quarters. The cumulative return would be 26x. With a 90% drawdown you would reverse that.
This is how things were reversed in the financial crisis. That’s the simple truth. There are people here at Bullish Cross who went from $10 million down to $100k and then back up to $30 million. How did that happen? Same basic strategy. You have to keep in mind that this near-term irrationality isn’t going to last forever. It will pass. Yet, current option values do not assume so. That’s why you were able to go back and buy the Apple $90 call-options during the lows of the crisis for $10.00. They went up 25 x by expiration.
12:52 PM — the third part of the plan is to trade in and out of the $900 – $1000 spread depending on the circumstances at the time. Notice the fact that Apple trade up and down between a low P/E and high P/E. Don’t chase parabolic moves. This is the result when doing so Just get the fuck out when Apple hits a 15.5 P/E and then wait until Apple gets down near 13 to get back in.
12:53 PM –But again, please realize that 47 trading sessions is a very long time. Just to give you some perspective, this entire sell-off hasn’t even lasted 47 sessions yet. It’s barely just hit 30. This sell-off feels like an eternity right? Well that’s how much time there is between now and January. Apple has shown that it can put up 15-20% moves up in just 20-days. That means in just half the time between now and January, we could be at $650 a share. Very easily. The sentiment could change very slowly until finally we get positive newsflow. Then people start coming back to their senses and the stock rebounds. Even a rebound to $600 would go a long ways because the positive momentum and sentiment of the rebound will cause the spreads to materially increase in value. They could quadruple from here. The point I’m making is that you need to have a concrete plan. And I think we will deliver a good one to be executed over the course of the next year.
12:57 PM — Now here’s my final point. You’re going to probably see 10,000 comments on “what’s if’s,” alternatives and doubts. It is what it is. This is what we’re going to do. I’m not going to defend it or spend my time answering individual questions. I’ve already thought of the risks and benefits. I can’t spend my time defending it. I’m just going to execute it. If you want to be part of it, then be a part of it. If you don’t, then don’t. I just don’t have enough time to sit there and respond to criticisms.
1:20 PM — Apple is currently the most undervalued it has ever been. Consider this. Apple’s earnings will likely rise to around $74.00 when it reports fiscal Q1 2014. They say market’s are forward looking right? This is actual proof that this is not the case. The market trades based on it’s own perspective of reality or ignores reality as it understands it. It is not forward looking. Not one bit. If it were forward looking, there is no chance in hell that Apple would be trading at $540 a share. No chance at all.
Consider this. Apple’s cash will probably rise to roughly $200 to $210 a share by January 2014. That means Apple is essentially trading at a $341 premium. And ernings rising to around $74.00 in Jan 2014, would put Apple at a 4.60 P/E ratio when you back out cash. That means if Apple grew at zero percent the stock would likely be sitting at a 0 P/E ratio. That’s forward looking?
The market knows Apple is at the peak of its expense cycle. That means Q1 2014 is going to be massively above fiscal Q1 2013 earnings. You’re not just going to have revenue growth, you will have Apple hitting the peak of the cycle on gross margin. It’s gross margins will likely come in near 47-48% in Q1 2014 while it comes in at 40% at most in Q1 2013. That means Apple will not only produce more revenue, but more of that revenue will fall to the bottom line.
Even a fucking moron would understand this. But apparently Wall Street doesn’t? I doubt it. Hence, this is not a forward looking reflection of Apple’s valuation. A stock trading at a 4 P/E is total bullshit. You have to assume from now on that either the entire stock market is run by total morons or it is run by people that don’t price things on a forward looking basis. Because the market is foregoing buying the stock at a 4 P/E ratio because they’re worried about earnings in two months? But let’s just ignore what will transpire over the next 9-12 months?
2:40 PM — Apple just hit a -30M Chaikin Oscillator on the daily chart. Pretty insane how much they’re selling Apple. It’s being sold as if the stock is going bankrupt. It’s trading at 7x next year’s earnings now. 4x when you back out cash:
2:51 PM – Well the hourly bars even though remain to be red every hour are starting to close off their lows now. You’re seeing buying come in on each hour which is closing them off the lows. That’s the first sign that someone has decided that Apple trading at a 4.4x x-cash is cheap.
3:25 PM — Apple is down $90.00 in 12 days.
4:00 AM – Well Apple has completed a 100% retracement of the gains. God I hate the fact that I work with fucking morons. Really. As soon as 2014 is over, I’m so through with the bullshit stock market. I need to work with people who have half a fucking brain. I cannot stand listening to this stupidity on CNBC right now or the vast bullshit all over the press. My biggest flaw is my inability to realize that I work with fucking tards.
Like seriously. How can someone state that Apple is going to $430? Only a dipshit with no knowledge of Apple’s financials or valuation can make such a statement. But notice how he’s in the position to make that statement. Which means my colleagues are completely out of their minds. I need to work in a different industry altogether. Here’s Apple trading at a 30 Chaikin Oscillator on the daily and a 25 RSI on the 14-day. It’s trading at 7x next year’s earning and 12x last year’s earnings. One of the lowest valuations of large cap tech. For what, because people don’t realize supplied constrained is a relative term.
And you think the U.S. will get over the flical cliff? No way in hell. Why would anyone thinking that? Congress fails epically to pass a bailout to save American Capitalism just to save their own skin in 2008. They screw around with the debt ceiling. And now people think congress gives a flying shit about America? They care more about their jobs than they do to help the country. Everyone remember this:
Or how about the debt ceiling debate. For those who are wondering, don’t expect anything out of congress. John Boehner is no better than Nancy Pelosi. They are both politically motivated. Here’s how things are going with the fiscal cliff:
Just like the S&P downgrade of U.S. debt as a result of the self-motivated congress. As far as I’m concerned, anyone who voted against the $700 billion TARP plan on September 29, 2008 should have been immediately fired and not allowed to be part of politics ever again:
Anyone selling Apple down here is a total asshole. And I’m embarrassed that I’m colleagues with them. So that’s why I’m pretty much almost certainly changing professions by the end of 2014. Maybe a little after.
4:20 PM — Here’s another thing. There’s no point in doing any analysis at all or investing long-term. Trading is the only thing that consistently works. Here’s why. You do the analysis, your homework and in the end it’s all worthless. Notice how most people in the market operate under their “ideas” of reality. Instead of working off of a framework of reality, they are working on their own perspective on what reality is. For example, right now there is all of this theory that this is tax selling. Well based on what? Did people poll 10,000 fund managers and ask them if they’re selling stocks as a result of taxes? On what basis are you making that assumption? Because in the end, fund managers aren’t even motivated by that. They make no more or less money if they sell to save for taxes or not. Because in the end, their performance is based on net asset value. Not net of taxes. Pre-taxes. But even if they were so motivated, if that were the case, the entire stock market would be taking a huge dump. On top of that, people wouldn’t be selling Apple down here at a 4 P/E ratio.
But this sort of gives you an idea of how things work. People just trade base don any b.s. theory they can conjure in their minds as seeming plausible. Or look at the vast number of misconceptions being thrown around and the price-tragetes you’re seeing with Apple and the basis of those targets. Apple is going back down to $450 a share because no one likes their products anymore. WEll thanks genius. Do you even realize what it would mean from a valuation perspective if Apple traded down to $450 a share? Nope.
Anyways. The point I’m making here is that trading is now abundantly clear to me to be the far superior approach to the markets. Look at our SPY record. That’s pretty easy money. I’m so close to being done with Apple. Trading the SPY works in every market. Apple just randomly crashes and then people all go back in hindsight and try to claim why it was predictable. Oh yeah? Predictable.
Well let’s think about that shall we? Here’s what we knew about Apple at the end of September and you tell me what is predictable. Here’s what was obvious and known at the end of September:
(1) On Friday, September 19, 2012 Apple was going the September Options Expiration. The last 4 or so monthly expirations preceded a big gap-up the following Monday.
(2) Apple launched an incredible device in the iPhone 5. You know it and I know it. Go back and look at initial reviews of the iPhone 5 pre-mapplegate.
(3) October is the most prolific month of the year for Apple
(4) Apple spent 5-days consolidating above $700 a share
(5) Apple was entering what was the most bullish period of the quarter for the stock. The last four to five weeks of the quarter are hyper-bullish.
(6) Apple has NEVER closed below where it was at week 5 in the quarter at options expiration. NEVER. Apple was at $675 at week 5.
(7) Apple’s earnings were just 5-weeks away where expectations were already very low and where many expected some big guidance.
(8) There were rumors of Apple launching an iPhone Mini.
Alright. Now let’s think about this a little further. Apple has never corrected before its earnings. Ever. In fact, only once did Apple see a brief pull-back ahead of earnings and that was the 10-days ahead of Apple’s fiscal Q2 2012. But that was not a very big pull-back and only after Apple was much higher between where it was at week 8 and week 10.
Ok. So what was the thought process at the time? Simple. The expectation was that Apple may gap-up as a result of being held back at September expiration. While we did expect some sort of a correction after Apple reported earnings, that correction could have happened from $730 or $750 a share. It could have been from much higher levels. What’s more, if Apple did gap-up on its results we may have then lightened up. Especially at $730 or $740 a share.
So you can see that at the time, there was very few signs of any weakness in Apple. What about the first $20-$30 pull-back? What about it? During the rally from $570 up to $700, we’ve seen multiple $20-$30 pull-backs. Hell, we once had a $40.00 pull-back during the rally.
What else did we have? We had QE3. And what was our experience with QE1 and QE2? Both lead to huge parabolic rallies in Apple an the market. So why did we feel confident in Apple up there? Simple, the evidence was pretty strong. Why were we so confident in the $655 – $705 spread? Simple, Apple was already sitting at $700 a share in September. Do you know what that has meant in the past for Apple? $800 by January. That’s what hit has meant. That’s what we have seen in the past. The fall is very prolific for Apple.
What about the pull-back? What about it? Why were we confident at even $600 that Apple would rally back. Because it has always done that and the fundamentals were plain and clear. A pull-back from $70.00 to a $60.00 a share for a stock is no big deal. That stock could be right back to $70 within a month no problem. We see that happen all the time.
But this sell-off down to $530? What the hell? This is totally unprecedented in my mind. Why? Because there is a very obvious divergence between the way Apple is trading and Apple’s fundamentals + valuation. That’s why I think maybe this is redemptions. Maybe this is a broker failing and requiring to sell shares. This doesn’t make sense. The selling is vertical. It’s pretty much straight down.
There has to be something more to this than mere selling as a result of fears. This doesn’t make sense. Because it would be two sided. There are going to be a lot of other people who think Apple is undervalued. So that’s why this amount of selling seems to be a little forced. Now here is a simple issue that has been on my mind for the past week. When you look at the April-May sell-off, it is a lot like this sell-off. Think about it. Without Apple’s gap-up on earnings, the hourly selling pressure is exactly the same. Like what we saw during the trading sessions of those periods is the same here. The only difference is there was a 50-point gap-up. Without that gap-up, the sell-off is the same. That could be an encouraging sign. But let’s just wait and see:
4:50 PM — Apple is at a 20 RSI on the 60-minute chart. That would suggest that we should see a $23-point rally. Yay. A whole $23.00. We will have reversed what happened today. That’s the short-term RSI indicator:
Apple is at a 24.33 RSI on the daily chart. Will this time be different? Apple could be setting up for a fatty head & shoulders top. This would be a $170 head & shoulders top with a downside target of $360.00 a share. In a market full of tards, who knows?
Apple closed at a -30M Chaikin Oscillator. That’s pretty extreme as well. But I don’t know how all of this helps us if Apple doesn’t rebound up to $600 a share in like 3-weeks. It need to get back up to $600 within the next 3-weeks which will give it 3-5 weeks to rebound up to $650 thereby restoring a lot of value in the $655 – $705 spread. Things are not looking good.
Finally, Apple closed at a 16.09 RSI on the 7-day and at almost $12.00 below the lower b-band. This almost guarantees that Apple opens and probably closes below the lower b-band tomorrow which means Apple bottomed. I’m very sure that either Apple is in an all-out irrational crash to $430 a share to fill the $420 – $450 gap or it is still semi-ratioal technically speaking and wants to test the $530 level thereby producing a 100% retracement.
The good news is that things will have finally bottomed. The bad news is that Apple has 45 sessions or thereabouts to get back up to $700 a share. That’s $170 or 32%. That would be $3.78 a day on average for 45-sessions. Really, I would just be happy with $600 within three-weeks. That would give us reasonable exit points and it would keep us in the game to bitchslap 2014. Then I can quit and play with my kids.
5:07 PM — The SPY is almost oversold on the 14-day. As many of you know, that’s typically a big indicator of a bottom. But the biggest indicator by far is the $NYSE McClellan Oscillator getting oversold. The $NYSE McClellan Oscillator is nearing that key bottom level. It’s at -48.7M right now and anything under -70M puts it in a key place.
The NASDAQ-100 has hit under a 30 RSI on the daily. That’s typically a huge indicator for a bottom for the QQQ. So we have all of these bottoming indicators. Not it’s going to come down to how Apple and the NASDAQ-100 recovers. Bottoming at $610 is a lot different than bottoming at $530. That’s a huge difference. And the morons of the market have put us in a delicate position. Really, what we’re going to want to see is to sell around a $620-$630 price level and then consider how we will move forward from there. I do think we will see another major sell-off like this between January and March which will form a head & shoulders top making it the biggest head-fake in investing history. The $900 – $1000 spread will be $1.00 and go to $30 within 4-months from that point:
5:22 PM — I think all things considered, Apple is probably going to rally up to $640 by January expiration. If we are lucky we may get up to that $650 level on a test before the expiration. Here’s why. This outlook I laid out above is going to unfold. Today’s sell-off is the most likely day for capitulation by far. There’s no question about it now. In fact, I don’t think there was a better trading session in the history of Apple sessions that is a better set-up for capitulation. Finally! Here’s why.
(1) Apple is now trading at a 12.11 P/E ratio on lows of the day.
(2) Apple has closed down nearly $12.00 below the lower b-band.
(3) I just cussed everyone out. That’s rare.
(4) Apple is at a 16 RSI on the 7-day
(5) Apple is at a 24 RSI on the 14-day
(6) Apple is at a -30M Chaikin Oscillator (missing until today finally!!!!)
(7) The Market is nearing a low. We’re at oversold conditions on the SPY and QQQ. Not a final low in the market, but getting close to that.
I think Apple will test $528 tomorrow, hammer and close with a black bar with a long candlestick wick. That close will be below the lower b-band. Then hopefully that will spark a rally. What should come next is an up $50.00 day. Apple is due for an up $50. Just like when the Dow loses 400 and 500 points, eventually there is this 500 point up day. Well that’s where we are with Apple.
I think the Apple $600 – $650 spread holders are safe. Remember, the model portfolio is designed to be able to accept a loss on the $655 – $705 so long as the $600 – $650 closes green. We would actually end the year up huge if that happens. I know not everyone is holding those positions, but all we can really do is design a plan based on that.
My hope right now is that Apple’s reflex rally will be huge and quickly. Because if we get an immediate relief rally up to say $620 — something that is very possible over like a 20-day period — then we could sell the $655 – $705 for a very reasonable price tag. We will then consider selling the $600 – $650′s as well.
But what we will do from there is play both April spreads and January 2014 spreads. Hopefully, we will still be able to step into the $900 – $1000 spread on a big enough pull-back at $5.00 a contract. That would be a great position overall because just the rebound itself would take that spread up to $30 or $40. But anyways. I do think today was capitulation. This is the best set-up we’ve ever seen out of Apple. Far greater than any other session this week and infinitely better than last Friday. Why? Because we were missing the $12 close under the lower b-band AND the -30M Chaikin Ocillator. We’re also sitting at a 24 RSI on the daily for god sake. Remember, when that happens on the hourly, you tend to see a 10-15 back-to-back green bars. Well the same works here except on a daily time-frame. So we could end-up seeing something like 10-15 days of green straight. A +50 day would go a long way for us. Maybe Apple’s management won’t be total pricks and come out and say something. Anything. Even if they say, “we proud to say that we are finally in supply demand parity” or better yet, offer mid-quarter upping of guidance. That would be huge. If Apple increased guidance, that would cause a parabolic rally. Apple has never done that. But if they did, it would be huge. Now back from fantasy lang, I do think i’ve laid out why we’ve capitulated and why Apple will probably rally to $640 by January expiration.