Steve Jobs announced that he is resigning as CEO of Apple (AAPL), that he would like to stay on as Chairman of the Board and that he would like Tim Cook to be his successor.
If there was a good way for Steve Jobs to resign as Apple's CEO, this is probably it. He has named a very capable successor (as expected), he's moving to chairman of the board to overlook Tim Cook's day-to-day leadership (not much unlike what we saw with Bill Gates at Microsoft (MSFT)), and he's resigning in a relatively stable trading environment for Apple.
This was all but expected and I think it's very possible that when the dust settles in the morning, Apple might not even be down that much by the closing bell. The reason I say this is because I think there has already been a huge built-in "Steve Jobs can die at any time" overhang on the stock.
That overhang is gone. The initial reaction no matter what happens will probably be negative. We can see Apple open down something like $20 - $30 or more. But let's take a look at how the short, intermediate and long-term reaction will be to this Steve Jobs news and how it will impact Apple shareholders.
As I explained right when after-hours trading opened, there would be an immediate negative overreaction where Apple sets a low that probably won't be seen in the traditional session Thursday. If we have a generally positive day in the markets, we're unlikely to revisit those after-hour lows.
Yet, outside of the trading session tomorrow and the next few days, we still have our key intermediate support levels that must be held. Regardless of what the fundamental news happens to be, if support lines are lost, then we're going to see a clean breakdown.
Here is a chart of Apple's 5-week symmetrical triangle/bullish pennant that is still developing. Notice that this Steve Jobs news might help us get our third touchdown to the consolidation line. If we hold that line and then break out on a market rally of some kind, then we're going to be off to the races in a major way. Take a look at this chart below:
After the $355 area, the next major level of support for Apple is $330 - $332 level which was the neckline of the June inverted head and shoulders pattern that was a precursor to Apple's move to $400. Here's what this particular outcome might look like. Notice that if we did get down to the $332ish level, I think that is a major support line that I simply don't see how Apple would crack. I would be doing all of my buying at this level.
Again, I think to get down to this $332 level, the market would have to trend back down to the 1,100 level on the S&P 500, and it would probably have to lose support. There's going to be a lot of investors salivating tomorrow to get into the stock on the cheap. So you can bet there will be a lot of support in Apple and it's going to take a lot to get the stock to really sell-off.
The Intermediate-Term Outlook
The intermediate-term outlook is a little murky given the conditions in the market. This Steve Jobs news adds yet another level of complexity. But I think what you're going to find with this departure news is a honeymooning period where the market is very accepting of the fact that Jobs is gone.
You're going to have analysts and investors and journalists all saying that Steve Jobs' departure isn't a reason to sell the stock, and that Apple can fully function without its world-class CEO. You're going to have people saying that Tim Cook is just as capable, and you're going to even see segments showing Tim Cook's accomplishments.
In fact, you're going to get a lot of people coming out and reminding people how well Apple performed with Tim Cook at the helm in 2009 as the stock rallied from $80 all the way up into the $200 a share range without Jobs. So we could have a period of calm with regards to how the market, the media, analysts and investors view his departure.
Yet the stock could be trading in any number of directions based on entirely unrelated or separate reasons. For example, if the S&P 500 is rallying, the stock could be trading at $430 by late-fall early-winter. If the S&P 500 goes on a huge nose dive toward 1,000, the stock could be trading at $330 sometime in September to the indignation of its investors.
This Wouldn't Have Happened if Steve Jobs was Here!!!
Now this brings us to the critical point that I think a lot of people are going to overlook. The Steve Jobs departure news is going to be a nagging thorn in Apple's side in one very particular way that not one article you read tomorrow will bring up.
Every time something goes wrong at Apple or is even perceived to have gone wrong at Apple, it will be blamed entirely on Steve Jobs not being there.
If the S&P 500 loses support and falls to 900 leading to Apple testing $300, you'll never hear the end of it on CNBC. They won't attribute the sell-off to the fact that the S&P just lost 200 points. No.
Apple's weakness in the stock is because is Steve Jobs isn't here. If Steve Jobs was at Apple, then the stock would be trading at $975,000 a share according to the financial press.
As far as the press is concerned, anything that goes wrong is because Steve Jobs is not at the company. Let's go back 15 months and take a look at some events.
Antennagate: Can you Imagine if this happened after Steve Jobs resigned?
"This Would Have NEVER Happened if Steve Jobs were Here! It's the end of Apple!" If we go back 15 months, and get Antennagate without Steve Jobs at the helm, the disaster would have been 10 times worse from the media's perspective.
Because not only would we have had the iPhone 4 antenna issues, we would have had every single journalist blaming the issue on the fact that Steve Jobs was no longer at the helm.
The stock price would have seen a tremendous amount of bearishness because a lot of imbeciles would have been convinced that this antenna issue portended the death of Apple. You would have seen the wildest conclusions being thrown around despite the fact that antennagate had practically zero impact on Apple's top or bottom line.
The White iPhone 4 being delayed until the Spring wouldn't be because there were technical or manufacturing issues. No. It would be because Steve Jobs is not at the helm.
If we get an earthquake in Japan leading to iPad production problems, it's not because of an earthquake in Japan. It's because Steve Jobs is no longer at Apple. If Steve Jobs was here, he would have stopped the earthquake with his mind.
If we get a slight contraction in gross margin as a result of higher commodity costs or as a result of a higher mix of iPhone sales to iPad sales, that contraction is not because of the less favorable product mix between iPhones and iPads. No. That contraction is because Steve Jobs is no longer at Apple. If Steve Jobs was there, he would have used his fingers to magically stretch those gross margins out to the higher expectation.
If a rumor for the iPad 3 doesn't come to fruition, it has nothing to do with the fact that the rumor mill was simply uninformed. No. That isn't possible. It was because Steve Jobs is no longer at the helm. If Steve Jobs was still at Apple then the rumor that the iPad 3 would serve as an advanced teleportation device would have been delivered. The fact that we can't teleport across the world with the iPad 3 is because Steve Jobs is not at the helm.
Now suppose everything runs smoothly. If that happens, then it's because Steve Jobs is chairman of the board of directors, and the minute he leaves the board, everything is going to sh*t. Never mind that Apple has thousands of employees and is a multi-billion-dollar company with thousands of moving parts that can't possibly be attributed to one man. If Steve Jobs is not there, Apple might as well declare bankruptcy, will be the popular wisdom.
This is what you can expect to see in the moderate long-term. Meaning, until the market feels perfectly comfortable with Tim Cook, we're going to have a period of time where anything that goes wrong will be attributed to the lack of Steve Jobs. This means that when things go wrong, lesser minds will sell the stock thinking it's because of no Steve Jobs (even though it has nothing to do with that fact) and this will make issues bigger than they need to be.
It will also take a significantly longer time for the market to work through any particular headwinds at Apple. It's going to take time to get all of the imbeciles out of the stock entirely because there really aren't that many funds that fully understand Apple. This brings us to our last point here: how the Steve Jobs news "really" impacts Apple the company, if at all.
The Reality Regarding Steve Jobs
Steve Jobs has no more than a negligible impact on Apple's current innovation, earnings and future. When I say he has no more than a negligible impact, I'm being generous. The fact of the matter is, once a company reaches the size of Apple, there are so many moving parts that make the company what it is that one person can no longer have such a massive impact on any aspect of the company.
Hundreds of thousands of man hours have gone into the design of Mac OSX, Apple iOS, the iPhone, the iPad and Macintosh computers that one person can't be said to be responsible for all of that success. I think the market overstates the value of any CEO to its company.
While setting the overall direction and vision for the company is extremely important, Steve Jobs has already set Apple on the right course.
There's an obvious name brand that everyone who uses Apple products or who works at Apple already fully recognizes. From that framework, we get innovation from thousands of employees.
The structure, framework, vision and genius behind Apple and its products can be said to be attributed to its mastermind architect CEO. But do you think Steve Jobs sits there in a lab designing the iPhone or the iPad? Do you think he's sitting there programming?
Steve Jobs has already made his major contribution to Apple, and that is setting in motion an idea of extraordinary originality upon which the thousands of employees at Apple can build and improve.
The next version of iOS and the iPhone isn't going to cease to look like iOS or what we have come to expect out of the iPhone just because Steve Jobs isn't there.
If we go back to 2007 before the iPhone was introduced, that's when Steve Jobs was still very much needed and an integral part of the Apple operation. But now that Apple has moved toward becoming the largest company in the United States (perhaps the world), Steve Jobs is not going to have that much of an impact.
This reality is going to take time to be understood and accepted in the marketplace. It could take 6 months or it could take 2 years. Eventually, as Apple continues to post billions upon billions of dollars in cash to its balance sheet and is sitting on $400 billion in 2015, the market will understand what it's dealing with here.
Everyone who sells Apple thinking that Steve Jobs is Apple, and Apple can't function without Steve Jobs, is no less than a moron. Anyone who sells because they believe that this perception that Steve Jobs matters will be too prevalent is smarter than the idiot thinking that Steve Jobs actually matters.
But this person is simultaneously missing the fact that Apple will be recording hundreds of billions of dollars in cash to its balance sheet over the next few years, and that it will have more cash than its current market cap in less than 36 months.
This will eventually take its toll on market participants. Eventually, Apple is going to go on a Google-type run from the $300 level to the $750 level. It is inevitable.
Thus, the way you play this Steve Jobs news is to wait for the market, the media, the moronic analyst and mutual fund manager to go onto CNBC and blame some asinine event on the fact that Steve Jobs is not at the helm.
At some point in time, things will line-up in a way that will present another major buying opportunity like we had in March 2009, August 2010 and June 2011. We'll get that situation again. It could be now. It could be 6 months from now.
If Apple does fall to the $330 level, it will present with one of the best buying opportunities I've ever seen. Bullish Cross will initiate its 5th buy rating if this happens. Those who know us know that we've nailed the bottom on Apple on four separate occasions including in June, and we've nailed every single short and intermediate-term price target.
Disclosure: I am long AAPL.