So AAPL is at $450 now, and we know someone guessed this 35% correction was going to happen. Instead, I want to talk about what's happening in the next two to five years with Apple and Google (GOOG), the only two viable computer operating systems remaining for the present and future, and without Microsoft, the copycat that couldn't.
From "stockcharts.com": At the company level, fundamental analysis may involve examination of financial data, management, business, and competition. I will be focusing on the last three areas in this assessment of Apple's Macro strategy against its largest competitors.
It's important to understand how I came to this conclusion. I did not theorize this, but I actually empirically tested it against reality: I bought the Windows 8 upgrade ... and I hate it. It's so bad that, as a Windows user since ummmmmm, the internet appeared, I am 100% committed to switching to Apple's iPad 4 as my main computer (I'm also trading in a Kindle Fire to Amazon).
The theme is simple. Microsoft will forfeit the last of its army of home computer users to Apple, thanks to the conversion to a "tablet only world."
Yes, Reggie's trade was correct, shorting at $700 and covering under $460. But now what? Now we have a real time experiment in long squeezes.
Nassim Taleb explains in his masterpiece, Antifragile, that when someone or something is fragile (having a concave risk profile), it is likely to fail at stressful moments. This is one such possible moment for AAPL.
Apple does not have a concave risk profile. Let's check the list of fragility:
1. Subject has debt. FALSE: Debt is $0 for Apple.
2. Subject has limited upside and unlimited downside. FALSE: Thanks to digital distribution of content and software, AAPL has a scalable distribution model, allowing work to be done once, and then sold an infinite number of times without much additional input.
3. The underlying security is 'Too Big To Fail' and things that are systemically large are fragile to shocks. TRUE: This is where one must be careful in trading the stock, because it has the potential to shock the market into a flash crash situation, which makes entries and stop losses more difficult to manage for investors in AAPL.
I know it seems like Apple fell very far and very fast, but stocks tend to slip and slide around violently for months after a move like this, assuming the move down is even over. If this is a long squeeze (due to the factors mentioned in point 3 above, then the weakest hands among hedge funds, institutions, individuals, pension funds and even some Apple insiders will begin spamming quite hard tomorrow and in the coming weeks.
If not, then this isn't quite the Black Swan fragilista moment everyone is waiting for.
Let's see what the options market expected out of AAPL before they announced:
The AAPL $460 put option (with 2 days to expiration and inflated for earnings volatility), closing price was around $2 before the most recent disappointment in earnings. The following day, it closed at $11.40 after the bloodletting to $450. So while the move was unexpected, this is hardly an uncommon leveraged return on a move of 12% in the underlying.
I take this as a sign that the market did not actually ove react yesterday, as any less of a reaction would have been decidedly bullish, owing to the inherent correctness of the derivative price compared to the day's volatility.
Apple has a minimum of two "golden years" left before Google can fully cannibalize its business in a meaningful way, and why I think it should be purchased aggressively over the next 8 months after dips (whatever is comfortable for you, dear speculator) with a target in the $1,300 range.
This accounts for continued rise in stealth inflation (food/gas/education/debt default destruction of the currency/etc), which accommodates the high "dollar value" price target (price targets are always guesses at best, just look at all the billion dollar analyst firms that clustered around the wrong AAPL targets and lowered them yesterday during the crash).
It wasn't known before the release of Windows 8 if Microsoft was as incompetent as we thought, but it's so much worse than we realized. Now, with less uncertainty, I am taking the position that MSFT is going to devolve into a software/gaming company, much like Adobe (ADBE) or Activision Blizzard (ATVI).
This is because Windows 8 is trying to Elmer's glue an Apple/Android experience onto the legacy of 80 versions of old Windows software. I expect a mass exodus of users abandoning Windows for good, destroying the brand except for a few XP users.
With Mr. Softyface out of the way, it's Google vs. Apple. The Nexus 10 is the best tablet Android offers (it's by GOOG), yet it is noticeably inferior to the iPad 4 than its $100 in savings suggests (6 hours more battery life, just watch this review. While Android will very likely be the 5 year winner of market share, the short term (2 years) favors Apple.
It is my conjecture that Apple has yet to reveal what will end up being a "black swan" to people like Reggie Middleton, or whomever is a bear on Apple below $300. Yes, if the threat of a long squeeze is realized, it could sail down there without even a tail wind. And while I don't doubt the margin compression story on Apple, I think they'll make it up on volume in home computing dominance.
This Swan could be gray or black, and could take any form for Apple. It could be as simple as Apple TV working. Or when 80% of Windows users switch to tablets that operate as capable desktops - bursting with a massive App Ecosystem, as well as luxury suites of Adobe programs for Apple's legions of writers, designers, artists, and musicians who have galvanized around Apple's products.
Android will continue to gain in mobile, but Apple users stay with Apple with fierce loyalty. Windows users will undoubtedly switch to Apple, and Apple will find itself alone on the coffee table and/or workdesk of virtually every person who uses a computer at home and has to do more than just surf the web. Not to mention the millions of teens using earbuds to relieve their sensory deprivation (Public Education) across the U.S.
Sorry Google, but Android devices are not ready to play in the home, not yet. Apple's home computing dominance has just begun to warm up, and its mobile business, like any complex organism, will fight ruthlessly and tirelessly for survival and eventual dominance.
Let's see what happens once all the feathers have settled on this trade.