Apple: Let The Pullback Begin

| About: Apple Inc. (AAPL)

I wrote an article about a week ago how I felt Apple (NASDAQ:AAPL) was due for a pullback from its current levels. I spoke about how I believed it would see $500 again before it saw $600. Monday I believe began the downward cycle I thought was coming as the stock reached as low as $531, and closed down just over $533, with more than double the normal volume. It is currently down another $1 in after hours trading.

I want to reiterate I am still bullish long term for this stock, but believed (and still do) a pullback to $500 is coming and that it is not necessarily a bad thing. People do take profits when they can and very rarely do stocks point toward the sky and never correct themselves.

click to enlarge

The above chart I had placed in my last article regarding the impending pullback. As I mentioned then, based on Apple's history, in the last year it had 4 separate occurrences of large gains, and in each instance, it retreated back 11% or more before rebounding. See spreadsheet below showing the last run back in Sept., closing price on right.

8/19/2011 356.03 Run Begins
8/22/2011 356.44
9/1/2011 381.03
9/16/2011 400.50
9/20/2011 413.45 Up 16% in one month
9/23/2011 404.30 2.21% DOWN for day
9/26/2011 403.17
9/27/2011 399.26
9/28/2011 397.01
9/29/2011 390.57
9/30/2011 381.32
10/3/2011 374.60
10/4/2011 372.50
10/7/2011 369.80 11% giveback in 3 weeks

As you can see, after a nice run for the stock, there was a giveback almost immediately. I did skip a few dates in early Sept., as those were days of very little change in either direction. What will REALLY make you shiver, the first day the stock dropped after it's peak it was a 2.21% loss (sound familiar from Monday's action?). It had 8 straight days of gains
. Take a look at the chart from the last month's run.

2/3/2012 459.68 Begin of Run
2/6/2012 463.97
2/9/2012 493.17
2/14/2012 509.46
2/21/2012 514.85
2/23/2012 516.39
2/24/2012 522.41
2/27/2012 525.76
2/28/2012 535.41
2/29/2012 542.44
3/1/2012 544.47 7 straight days of gains
3/2/2012 545.18 Peak??? Up 18.5%
3/5/2012 533.16 down 2.2%

Notice on both spreadsheets, there were multiple consecutive days of gains for this stock, followed by a small drop (like Monday) and then a double digit freefall over the course of a week or so. Will history repeat itself?

This can be a GOOD thing for us investors. It allows those without positions in the stock to get in at a much better price. Those who have positions can add to them, those who dollar cost average can buy more shares than normal. Just because the price is correcting itself (in the short term) doesn't mean anything is necessarily fundamentally wrong with the company. You can use the current situation to make more money via options, buying puts OR increasing your position.

A 11% dip would put the stock below the $500 mark, which (as history has shown) would be the proper short term pullback for this stock. I do not feel that the fact the market is down today (only .20%) has any major reasoning behind the pullback. There could be other factors, but I believe the main reason is it just grew too fast and price-wise to sustain the drive.

Once again, I am bullish on the stock plain and simple. This stock may or may not follow its pattern and reach the $500 benchmark I stated it would. But it seems to be on its way (once again) and either way Monday's losses give all of us an opportunity to get back on board or increase our positions.

Disclosure: I am long SIRI.

Additional disclosure: I hold AAPL Puts, and Sirius covered calls and own long Sirius options.