Apple Longs Better Off Just Holding

Aug. 1.06 | About: Apple Inc. (AAPL)

A few weeks ago there were various concerns about Apple Computer (NASDAQ:AAPL). As has been the recent case, there is a lot of hot money reacting (and maybe over-reacting) to anything perceived as news.

Because of the concept of local market efficiency, the same news may be discounted on several occasions. A series of analyst reports come out on a stock within a short time, each having an effect. A series of comments by Fed Governors each gets a separate effect. At some point, there is an epiphany.

The Apple chart did not look very good to some technicians. This viewpoint no doubt took the stock down another 10 - 12% from the time of the commentary in early July. We like to be contrarian, especially when the fundamentals have been overlooked, so we laid out our case for the stock.

As the chart below shows, the stock did move lower. The problem is that those who sold are probably still out of the stock unless they bought the gap on July 20th. Even that move represented a loss over just holding. I congratulate anyone who is trading and timing this well, but it is extremely difficult.

The fundamental news moving Bank of America to upgrade AAPL yesterday is essentially that computer sales are doing well, the iPod transition effects have been "priced in" by the market, and that there will be new products driving the cycle. Their price target does not include these new products, like the Apple phone, so you can expect another price target increase as those events draw closer.

This is exactly what we have been saying.

Fundamentals do matter. There is a natural inclination not to "chase" after missing a buying opportunity. Technical analysis can help in picking entry and exit points, but this example shows the care that is needed.