Apple: The Pullback Might Be Worse Next Week

Apr.14.12 | About: Apple Inc. (AAPL)

It has been nearly a week or so that I have written about Apple (AAPL) and while I had been completely wrong in my previous few articles, it was simply a matter of time for the selling pressure to begin.

Apple Inc. (NASDAQ:<a href='http://seekingalpha.com/symbol/AAPL' title='Apple Inc.'>AAPL</a>)

As I have stated on numerous occasions, I love Apple, I want to eventually own shares, and I have not, nor will I short Apple. That being said, the stock is finally pulling back along with the rest of the market, and has dropped more than 7% in just a few sessions.

On April 10th the share price was $644.00, and Friday (4/13) it had dropped to $605.00/share. I am not sure how many buyers rushed in about $620.00, but you are now underwater.

Those who have held since forever obviously will throw "stink-bombs" and tomatoes at me for having the audacity to suggest that profits should be taken, which I still believe would be prudent for anyone in the serious money. To be clear, I am not suggesting that anything is wrong with Apple stock OR the company, and I am not screaming and yelling that everyone should dump the stock. To the contrary, now that it has pulled back, I myself will be opening a naked put position AGAIN at a strike price of $525.00/share - $550.00/share. I will decide which position to open on Monday.

An Issue That Should Be Monitored

Whenever the government sticks its nose into the business world, nothing good can come of it. The DOJ has brought a lawsuit against Apple (read here), and the government hates price squeezing and back-room "deals". Not that any of the sort is the absolute truth about Apple and I believe Apple has a good case to defend itself. Just my opinion of course.

The issue is perception. When a cloud forms over an area, we have no idea whether it will rain, drizzle, pour, or just move on. That's what this is, a cloud hanging over Apple.

Companies have little clouds all of the time. When the Department of Justice gets involved it is prudent to at least monitor it.

Will Earnings Be Robust Enough?

On April 24th, Apple is expected to release 1st quarter earnings. Everyone on the planet is expecting another blow-away quarter, as well as continued super optimistic forward looking projections.

With more iPad sales, China growth, and the new iPhone 5 ahead, (not to mention the Apple TV drumbeat) earnings will no doubt be extraordinary in my opinion.

Once again we are talking about market perception, irrationality, and psychology. I get the impression that folks are now taking profits, and will use any excuse to sell some shares (not entire positions). This will place more downward pressure on the share price, and could be a sharper sell off than we have seen thus far.

History has shown that after Apple announces earnings, there is a dip in the share price of 2-4% at least. This time, if earnings are not pristine, it could be twice as much of a dip. At that point, I feel that buyers will come back as the dust settles, and it could be a quick turnaround.

Perhaps I will finally get to own Apple shares at about $545.00/share.

My Opinion

Nothing ever changes in the world of stocks. When prices rise quickly, people will take profits, which will also shake up the weaker longs, and the share price will drop. That is the way it has gone forever.

Apple is no different in that respect, and another 7-10% drop in the price will bring it down to the area I want to finally buy shares.

Could I be wrong? Of course! I could just as easily be very right.

Disclaimer: Please be sure to do your own research prior to making any investment decisions. This article is not a recommendation to buy or sell any security and is strictly the author's opinion.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.