An Apple Trading Game Plan

Jun.16.11 | About: Apple Inc. (AAPL)

Our take on Mr. Retail, Ron Johnson, leaving Apple (NASDAQ:AAPL)? He’s the luckiest guy in the world. Microsoft (NASDAQ:MSFT) stores look exactly like Apple stores, but nobody is in them. Yes, the store layout and the genius bar are the best in the business, but to think that Apple retail would have had success without a stellar product line is a stretch.

Can Johnson replicate his success from Apple at JC Penney (NYSE:JCP)? Only if he fills his stores with excellent product. I’m sure Steve Jobs views Johnson as replaceable; otherwise he never would have left. I don’t want to discredit the contribution of Johnson; he did a great job of establishing the Apple culture with well-trained staff and personalized customer service. But to think that he is irreplaceable is misguided. The iPod, iPhone, iPad and Mac are irreplaceable.

As for Apple stock action, our big question is getting answered as to whether Monday’s low was the beginning of a meaningful rally or if it is just more of the same. Definitely looks like more of the same. Take a look at these updated statistics since November 5, 2010:

Friday Date

Friday-Monday Apple Action

Prior Monday Low-Thursday High

Nov 5, 2010

0

+18

Nov 12, 2010

-8

+2

Nov 19, 2010

-1

+3

Nov 24, 2010

+3

+6

Dec 3, 2010

0

+8

Dec 10, 2010

+1

+4

Dec 17, 2010

-1

+2

Dec 23, 2010

-1

+7

Dec 31, 2010

0

+4

Jan 7, 2011

+2

+10

Jan 14, 2011

+3

+9

Jan 21, 2011

-7

+12

Jan 28, 2011

-8

+18

Feb 4, 2011

+3

+10

Feb 11, 2011

+2

+13

Feb 18, 2011

-8

+4

Feb 25, 2011

+3

+8

Mar 4, 2011

0

+8

Mar 11, 2011

+7

-1

Mar 18, 2011

-7

-12

Mar 25, 2011

+3

+11

Apr 1, 2011

-7

-1

Apr 8, 2011

-5

+2

Apr 15, 2011

-6

+6

Apr 21, 2011

0

+15

Apr 29, 2011

+3

-1

May 6, 2011

-3

+5

May 13, 2011

-5

+1

May 20, 2011

-4

+10

May 27, 2011

+7

+5

Jun 3, 2011

-5

+3

Jun 10, 2011

-5

-4

Totals

11 up

27 up

5 flat

5 down

16 down

Click to enlarge

Basically, what we’ve done over the last few weeks is to decrease our core holding of Apple from a 30% allocation of October options into a 5% allocation of deeper in the money October options. And we plan to use our 70% cash to take advantage of Monday lows/Thursday highs.

This has been a brutal market for anyone to make money in. The market has no memory of yesterday and no perspective of tomorrow. We, however, can have a perspective of tomorrow, and that perspective factors in a Japanese-led recovery, a Greek resolution, and a calendar-driven Apple fall run. Until the market joins us, we will retain higher than normal allocations of cash and will look to buy Apple next Monday and sell it at an intra-week high.

The drama of this summer is similar to the drama of last summer. The goal is to survive it and be in a position to thrive when the tide turns, just as we did last year. The only way you can lose is if you abandon at the bottom of volatility. When you have confidence in your stocks, it is easy to reconcile a lower portfolio value when those stocks are down. What is not easy to reconcile is a low portfolio when those stocks are at highs.

That statement will guide all of our trades over the next six months. With Apple, we have a stock that always bounces; either you believe it or you don’t. If you do believe it, you’re a fool for abandoning the stock in June. We’ve seen this movie before and are confident that all-time portfolio highs will be reached by September.

Disclosure: I am long AAPL.