Can You See Apple Under $60? 51 comments
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I can, but first we have to deal with the next level of support, which is 74-ish. What really makes me a believer is how easily we broke through 85 yesterday. You know, 85 represents both long-term support, and an important psychological level. That’s because Apple (AAPL) hasn’t been below 85 since January 9th of 2007, the day Steve Jobs introduced the iPhone to the world. This Bear has essentially negated the iPhone premium. I want to make clear that these are the words of Rex Crum of Market Watch, not mine. Man, you’ve got to love that name!
How can this be? Apple’s fundamentals are strong, right? Yes they are. But that has absolutely no bearing here. Apple is simply falling with the rest of the market, and so long as there’s no confidence in the market, it will continue to fall. I suppose you could argue that Apple has taken more than its fair share, but trying to argue that point with the market is an argument you can’t win. You can only accept it for what it is.
The fact that we lost the 2002 Bear lows in the S&P today was a very telling event. I don’t think any technical analysts saw that coming so soon, and with such force. The downside volume was incredible, and decliners led advancers by a toxic 8 to 1! Sure, I was convinced we would soon test 775, and thought it would represent a significant challenge to the Bears before ultimately breaking through. But today (Thursday Nov 20) the Bears cut through that level like a hot knife through butter. That’s a message you’ve got to respect.
And what is that message? Are we talking recession, or are we on the brink of depression? I was watching Larry Kudlow last night and they were bantering the idea about, but universally his panel said no depression. Of course you have to realize that Larry is the ultimate Perma-Bull. And if he’s even entertaining the question, then that’s got to make you think that the possibility is there. The fact of the matter is that to date, the S&P has lost more value than any other year since its inception, other than 1931, the beginning of the Great Depression.
The only way we’re going to avoid the depression scenario is for investors to regain confidence in the markets. And the only way that’s going to happen is if the Bulls retake 775, and hold it long enough for a strong base to be developed. How is this going to happen? Good question. What we need is good news, and lots of it. It doesn’t have to be transformational, all it has to do is give investors some confidence in what to expect over the coming months. Perhaps a solid and decisive bailout plan for both the financial markets and the auto industry is the ticket.
Some have suggested that the incoming Obama administration announce its intentions, or at the very least work with a transitionary plan with the Bush administration. But that could have the effect of diminishing the Obama administration’s effectiveness if the economy should significantly deteriorate before he actually takes office. And I don’t think they want to cozy up with Bush in any shape or form. It goes against all historical precedent and may incite a public relations nightmare.
Alright, so let’s assume there’s no good news coming and we can expect to continue down this path. What is the next level of support that we can expect in the market? Well, for the S&P it’s 664-666, that represents a period in 1996 when we had multiple tops, it also represents the 61.2% retracement from the top the market achieved before this Bear began in 2007. This is where I believe we’ll find a bottom, and I said as much in a podcast I produced last week called Going To Hell and Back, a reference to the 666 level.
If we fall to the 666 level on the S&P, then this would equate to the next level of support for AAPL which would be in the 62-64 range. Although I find the support in this area to be quite vague, it wouldn’t be a stretch to see the lows of 2006 provide the next and hopefully final levels of support at 57 and 53. I know these numbers sound crazy, but who would have thought Apple would have lost over 60% of its value since its all-time high of 202 just 11 months ago. Also, if you recall, not more than a couple months back, we had respected Apple analyst Gene Munster reiterating his price target for Apple of $250! So what’s crazier now, a 300% gain to hit Munster’s target, or a 25% decline to reach 60?
Stock position: Short AAPL.
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This article has 51 comments:
With the way the market is (which you later state) this should not surprise you at all.. If apple came out today and announced that they were going to raise guidance the stock probably wouldnt do anything.. market right now has no logic built in.. Apple is poised though to rebound nicely in Early 09..
How about both?
However, that's not all this company has done. Cash sits at $25B and growing at a rate of $10B+ annually. Apple has more cash than any CE company and approaching MS like cash flows. Better yet, it has weened itself from its most productive product line (ipods) and added 3 more high growth product lines that are growing 50%+ annually (mobileme, app store, iphone). Additionally, their bread and butter imac is growing above industry standard and is about to become the number 2 PC company in the US. Further, Apple is the smallest player with the highest growth and gross margin, in the largest CE market and is poised to transform that market as it did the mp3 player. Don't forget that Apple is also growing its retail and global footprint that has much more upside than down side.
Finally, with apples pending release of mobile processors created from the acquisition of PA semi, I suspect that they will produce mobile devices that are 20%+ cheaper to make which could catapult Apple into 100 million annual iphone level while also improving ipod GM. At that level and with GM above 45% look for Apples EPS to sky rock and cash flow to reach $15B annually. I personally believe Apple will have $45billion in cash by early 2010 or before. Steve Jobs is building Apple into the Samsung of the West. How about "Applesung" for a new corporate name. Recession or Depression, Apple's revenue and EPS will grow straight through it and you all will be amazed as to how they did it. Before I can believe your prognostications over mine, explain to me how Apple with only 2 years into the mobile market with only one device out sold Rimms entire line of cell phones? Until you can answer that question, please keep your dooms day projections to yourself.
and the CDS spreads are saying BRKA has more of a chance of going bankrupt vs MS. this very observation is, imo, a clear indication the CDS market is too easily manipulated, and can not be trusted. But when u see BRKA achieving such spreads, the CDS market is simply wrong or manipulated to achieve a perception.
if u r lucky enough to see apple at 60, it will be there for literally a second before major major buying takes place, seeing how it will be trading half its cash value. probably ending back at 80 within days.
The first thing that needs to be done to restore the confidence of the retail investor is to BAN SHORT SALES OF ALL EQUITIES.
I'm not sure which is crazier, but I think we'll see $250 before we see $60.
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Re: "The only way we’re going to avoid the depression scenario is for investors to regain confidence in the markets. And the only way that’s going to happen is if the Bulls retake 775"
Zach, this implies the determining factor of a depression is the valuation of the stock market. Is that really what you mean?
Apple's stock price will not shoot through the roof no matter how good a holiday they have. No company can do this in a poor economy. I agree that Apple will have another $2 billion in cash reserve, but that's about it. Investors will see next to nothing in share price rise. Or they'll see a quick jump and then watch it disappear in a week.
I'm only giving my opinion, not a guaranteed prediction.
On Nov 21 08:02 AM southbeach wrote:
> Apple is a decent company with some good products. Still, it´s been
> overvalued for some time - the user/fan/Jobs premium is alive and
> well. Expected dividend payments from the stock in the next 5 years?
> $0. Mmm, nice. The market was full of amateurs (and some pros too)
> just imagining the logic free valuation of Apple would take it through
> $200 and beyond. This Bear has teeth, that's for sure, but the problem
> was with Apple's pumped valuation. Now the cheap money steroids have
> been confiscated, it could easily drift down to the low 50s. Still,
> it could hit 100 again in a few years (2-3). In the meantime, a lot
> of fairly inexperienced investors (and hey, I've taken a bath on
> some finance stocks too) will become seasoned investors - hard lessons
> though. Apple could hit $40 a at trough, and I'd say its a reasonable
> buy there.
Ya isn't that funny logic, heh.
Unfortunately that's the way the MARKET seems to think. Aka. "If I crash so hard that people tremble in their homes, maybe I can trigger the depression by myself".
What I'm saying is that investors peg certain levels in the market, the way we draw lines in the sand. And there are no lines in the sand between 775 and 666. And so long as there's nothing underneath to prop the market up, and uncertainty has pushed volatility and fear to a crescendo, then stock price has nowhere to go other than down.
As stocks go down, so does wealth. As wealth deteriorates investment ceases and jobs are lost. As jobs are lost, money no longer flows, with no sales, things deflate.
Nonsense. Southbeach doesn't seem to understand what valuation means. If Apple, a company that has no debt, is bringing in $4billion of cash per quarter and still rapidly growing earnings, were to trade down to $40 it would be trading at less than 1.5X the amount of CASH currently on hand. That's practically impossible. The company is likely to have $40 billion in cash by the end of 2009. At $40/sh Apple's market cap would be less than $36 billion and trading at well below the cash on hand. That's NOT going to happen – even if Steve Jobs, Tim Cook, and two other top executives were to die tomorrow.
Re: As stocks go down, so does wealth. As wealth deteriorates investment ceases and jobs are lost. As jobs are lost, money no longer flows, with no sales, things deflate."
I agree there's a bit of negative influence on the economy when stocks fall. But I think it is established knowledge that stocks rise and fall with the EXPECTATION of companies' earnings. The rise or fall of GDP (which is is by definition the determinant of whether or not a depression exists) is not dependent on what the stock market does. GDP can rise during falling stock markets and often does.
Says a lot about Apple, says a lot about the long dying auto industry.
On Nov 21 12:35 PM SteveTheHawk wrote:
> Considering the current economic climate, I don't see Apple as being
> undervalued at all. Even with the huge drop in price, it still has
> a PE of 15. I don't see their sales momentum continuing at its current
> pace. What will drive the price up though is the restoration of faith
> in the credit and stock markets. Who knows if/when that will happen?
> I wouldn't buy it at 190 and I wouldn't buy it at 140. The Pollyanna's
> screamed that it would never see $100.00 again. Yeah....right. In
> normal times, I would jump all over Apple stock at the current price.
> These days..... I'm not exactly excited about it. Maybe I'll buy
> some.... maybe I won't.
Stevie, I dont own Apple, or a mac. I do own a bull put spread on them though.
You need to read the financials and the earnings conferences. You see, in this previous quarter, they actually made about $2.50/share. It is purely a trick of accounting that it doesn't show up that way on the statements. Take $2.5 multiple it by 4, stick any P/E you want on that. If you get a stock price less than the current market value less the cash on hand, don't buy. Otherwise, get a brain.
For you folks that think $60 will never be seen, there is easy money to be had selling the put spreads. Sell 40/60 or 45/65 if you like.
I've gone with the easy money at 30/50 myself.
As for Obama's 'crack team', his whole Admin is beginning to shape up as Clinton redux - not very encouraging stock-wise (or any other-wise), even to a lay person like myself. Not to mention Somalia coming back into the news again - how the O and the Clinton retreads manage that will indictate how they will manage financials.
This is a crazy market but AAPL's price is still very high. Don't just look at AAPL, look at something else too.
That is insane. If that happens, I will eat my mac. Even 80 is insane, but this market is all fear right now.
hard to believe there are so many fearful amateurs out there and no experienced investors. Buy it NOW while the panic runs red in the streets. It will double as soon as the idiots are back in gold or cash in their silly portfolios.
BTW, Mac laptop sales for October 2008 were UP 28% over October 2007.
but it's already insane that it's at $80..... I think the author may be correct with the mid-$60s call... after the Jan numbers we start back up though - the deferred iPhone revenues will be huge.
Got a fat short position? Some puts?
Are you the one who manipulated trades for $21.70 and $31.00 in late September, early October? Maybe if you keep writing articles like this, it will brain-wash people to think Apple should go to 60, and they won't notice the criminal manipulation that some people are engaged in....
I hope the SEC is watching very carefully the illegal manipulations of this stock.
Camden: Unlikely but not impossible. About ten years ago I recall that AAPL sold for about equal to cash value. I also recall some company being taken over because the cash exceeded the stock price. Rare but I guess it could happen. It just depends how deeply people feel panic. We are clearly in uncharted waters and there are a million scary stories running around, some with a grain of truth included.
Crackpot.
On Nov 22 08:58 AM PIF wrote:
> On the other hand, maybe the market is discounting the coming Obama
> depression (see announced tax policies and Congressional penchants
> for nationalization) and AAPL is a leading indicator of things to
> come - as it seems (to me) to have been in the past.
>
> As for Obama's 'crack team', his whole Admin is beginning to shape
> up as Clinton redux - not very encouraging stock-wise (or any other-wise),
> even to a lay person like myself. Not to mention Somalia coming back
> into the news again - how the O and the Clinton retreads manage that
> will indictate how they will manage financials.
I'm bullish AAPL, and a consumer of their products.
I think that speaks for itself.
And besides the fact that Macs have value and utility, they are beautiful to boot!
Typical projection of the last 5 days in the coming 5 years. Plus, talking his own book... Remember the key question: are you short because you're bearish, or are you bearish because you're short?
On Nov 24 12:26 AM taojaxx wrote:
> I e mailed that article to myself to reflect on it when we get out
> of this mess.
> Typical projection of the last 5 days in the coming 5 years. Plus,
> talking his own book... Remember the key question: are you short
> because you're bearish, or are you bearish because you're short?
Thanks for responding, especially on a day where the market hasn't been kind to you on AAPL.
I respect your opinion as it is backed by action. My point is whatever the severity of the expected contraction, I am only short if I feel the market has underestimated the potential shock.
Here, the market has corrected from 1550 a year ago to 7xx last week. The risk reward of a short position has deteriorated accordingly. I was short SPY from August 07 to Jan 08 (so in the 1300/1500). I don't think it is an attractive proposition to short when we have corrected about 45%. And shorting quality stocks when they have themselves been cut in half sounds all the more unattractive.
It is human nature to project the recent past in the foreseeable future. My experience tells me this is a source of illusion. My best decisions have come from visualizing a future that is different.
I think now is the time to do just that.
Not saying you won't make money on your position. Just saying you might be luckier than smart on that one.
Good luck anyway,
TJ
On Nov 24 10:11 AM Zach Bass wrote:
> taojaxx, I'm short because we're in the worst economic disaster in
> our history as a nation and the world. We're crashing man! Why would
> I expect anything else but to keep crashing until there's a reason
> not to crash? But even in a crash there are minor corrections on
> the way down. That's what is happening today (Monday Nov 24). But
> it won't last, because nothing has changed on the economic front
> to suggest an end to this disaster.
I guess I've been so (profitably) bearish since October that its effected my overall sentiment about the market's appetites for stocks, even good ones, and I see 09 in general being a grizzly year. Still, maybe 40 was just a shade too far, even for a nightmare market. But I think the stock has persistent downside risk from 85, especially until the extent and duration of the US consumer recessions becomes clear. Frankly I'd be happy to see Apple irrationally back at $200, since it would mean the economy would be back on track. Until then its volatility city, only for the day traders and foolhardy.
I gotta wonder...how's the short AAPL trade working out for you clowns now? You short-term, trend-chasing guys are clueless about value. Have you covered your ridiculous bearish bets yet? I hope not...maybe some nice fat capital LOSSES will prevent you from screwing around in the market in the future. Or, at the very least, maybe you'll limit yourselves to making INTELLIGENT bets.
Probably not, though....that would require actual intelligence.