Seeking Alpha
Portfolio strategy, dividend investing, mega-cap, large-cap
Profile| Send Message|
( followers)  

Technical or Fundamental?More than four years ago there was much excitement about the projected upper limit of Google's (NASDAQ:GOOG) share price. It had gone as high as about $750 and everyone was calling for at least another $100.

And those were the cautious analysts. I believe that back then, the more optimistic investors referred to those less ebullient analysts as some derogatory feline term.

Everyone agreed that on a fundamental basis Google was undervalued. But then there was that gnawing unease about how quickly its stock price had climbed, about 50% in about 6 weeks. That was the time that I learned that selling covered calls is not a good idea when there's a runaway train, despite the eventual need for the Law of Gravity to kick exert its dominion. I also learned that it's a bad idea to buy back covered calls at a loss. Invariably, the shares that you then hoped to ride up that hill would decide otherwise.

To put that the dichotomy of diagnostic outlooks into terms that my generation can understand, I need to channel "Meatloaf."

"What's it going to be, boy? Fundamentals or Technicals?"

Are we sounding familiar, yet?

At that point the tech bubble was already a very distant memory. Besides, Google had an actual revenue stream and obscene profits. It could only keep going up as there was no reason for search users to curtail their clicking, since there was no cost involved to use Google search.

Well, a funny and totally unexpected thing happened, unless you believe that a cacophony of bulls heralds the coming of bears.

Even before the bottom fell out of the market as we learned such expressions as "sub-prime" and "collateralized debt obligation"," Google decided to shed about 40% of its share value once it had hits its high point.

From that level it dropped another 40% in sympathy with the rest of the market. In fact, Google wasn't totally sympathetic as it left its bottom dwelling position about 4 months before the overall market, rising 18% from its low before the market took its lead. At least investors in Google seemed to be more optimistic than everyone else and greeted the bear market with a "so long. Been good knowing you, but I'm outta here."

From that market low, the S&P 500 has slightly edged Google in performance. It has outperformed, as well, ever since Google hit its historic high on that November 2007 day.

(click to enlarge)

I wonder if they calculated in Google's generous dividend payments or the stock split. At the very least however, during those periods of time that Google seemed to be undecided as to whether to move up or down, it was an excellent choice upon which to sell calls. With the introduction of the weekly option on Google it also became easier to avoid some of the whiplash movements that occurred on a predictable basis upon earnings announcement.

The fact that Google always announces on the close of Trading on the Thursday preceding the expiration of a monthly cycle helped to make matters even more interesting, but eminently avoidable.

Today, when someone says the word "Apple" (NASDAQ:AAPL), no one is really thinking of the fruit anymore. The product on nature's pollination may as well take a seat next to "googol."

Despite all of the naysayers calling for Apple to take decisive action regarding a divided or stock split after the passing of Steve Jobs, in order to maintain its share price, Tim Cook, the new and old CEO has done quite nicely, thank you. He's only given in on the dividend issue and maybe paying a living wage to its geniuses.

But the choruses are eerily reminiscent of Google back before we knew of such realities as Lehman Brothers and Bear Stearns.

Obviously, unless Tim Cook decides to pull a "Kozlowski" and blow it all on crack, hookers and baccarat, it's not too likely that excesses and greed are going to do Apple in.

But as the waves are increasingly filled with calls for Apple to reach $1000, just 2 days after first achieving the $500 level, you can't begin but to remember the Google experience.

Do these look similar? If not, maybe it's a good thing that I admit to not understanding even the most basic elements of stock charts.

(click to enlarge)

More and more people are paying attention to the "stream" whether on Twitter or StockTwits and there's no doubt that Apple is king of the stream.

Greece is barely a blip. It's all Apple.

So many are talking up the fundamental argument for why Apple is destined to reach $1000 and beyond.

James Altucher in his blog predicted that Apple would be the first trillion dollar company. He came to that opinion more than a year ago. On a subsequent "Fast Money" CNBC appearance he upped that to two trillion. My guess is that he didn't do so out of conviction, but more to get a reaction from the panelists, who seem to enjoy making fun of him.

He's good at getting reactions and the panelists typically dismiss Altucher's opinions at their own risk.

I tend to tune out when anyone starts talking about such things as "multiples." I really don't know anything about fundamental analysis. I understand the concepts and the use of standard metrics, but I'm too tired and lazy to do the homework necessary to be able to compare Apples and oranges. I tried doing that in an article that compared Apple to Home Depot (NYSE:HD). That wasn't well received, at least based on the comments.

Maybe people just didn't understand that Home Depot represented the oranges in the equation.

One time there was a great side quip from CNBC's Melissa Lee to Joe Kernen that likely went unnoticed. She commented that he was changing his metrics, regarding a topic they had been discussing. Then she added "you probably learned to do that from our guests."

But it seems that on the fundamentals Apple is destined to be heading higher. At least that what the stream says. That's what everyone says.

Much higher.

But then comes the competing stream. Those that are stressing the "technical" aspects.

I know even less about "technical analysis."

I do know enough to realize that there's no shortage of bright technicians looking at the same charts and coming to very different interpretations. I can stare at charts until my life expectancy is expired and I still can't see the cup from the handle.

I'm also biased because I don't have a middle name and can't even fantasize about filling the blazer of Carter Braxton Worth, the "Chief Market Technician for Oppenheimer, who also appears with great regularity on Fast Money.

He is the antithesis of James Altucher. You can decide for yourself on which metrics I base that comment

So out of my own shortcomings I choose to neither adhere to technical nor fundamental analyses.

From a fundamental perspective, I've always been amazed at the conundrum that surrounds "closed end" mutual funds. Never understanding how they could alternate between trading a huge discounts and huge premiums to the actual value of their holdings. There have been people waiting a generation or two for the seeming inefficiency to work its way out of the system.

In a modern day version you hear precisely the same choruses regarding Apple shares, as the belief is that the market has for a very prolonged period gotten it wrong by assigning Apple such a low P/E. The same argument was made on behalf of Google and still continues to be made. Should it receive the multiple of an ad firm or a technology leader with great forward growth?

Beyond that, in a rational world, one might suspect that in the case of a price discount, some wise investor or some crude barbarian would exploit the inefficiency in pricing.

But I suppose that you have to be selective in your application of the fundamentals. Maybe even barbarians exercise caution. No one really wants to be the first to follow their convictions, especially when there's money on the line.

Hey, even the most pious of public officials can't even entirely agree on the nuances of the "Ten Commandments," so what hope is there for the rest of us when hairs are being split and interpretations of objective data sets yields starkly differing recommendations?

Despite the fact that I spent the greatest portion of my life steeped in scientific methodology and have a great affinity for the sanctity of mathematical truth, I just can't extend that to the newest portion of my life.

Instead, I gravitate more toward the touchy feely professional realm of psychology.

It's all about the emotions.

Emotions and human behavior or powerful. I'm still somewhat stunned at all of the shock at the sad passing of Whitney Houston, but as I begin to think about the real mover of Apple or any other stock in the news, I realize that I know more than a single Whitney song.

"I get so emotional, baby."

And that explains it all.

In the meantime, both Apple and Google have entered a phase that is no longer one of unbridled price growth.

Surely, the Apple protagonists will claim that Apple is just taking a breather and that may very well be true, just as Google has taken a very extended breather.

But while everyone is waiting to catch their breath, there's lots of opportunity once again in exploiting the desire of someone to leverage their money and speculate on price movements. As long as there are people willing to buy options, the market needs someone to sell them. That is where the opportunity lies with both Apple and Google.

That may change. I'd be ecstatic to see either one lead the market to new heights. But for now, they each serve as great tools to create some revenue, with good opportunity to retrieve your shares, if assigned, at even lower prices.

For example, with 16 more trading days on the July 2012 cycle and with Apple trading at $573.11 (June 27, 2012, 2:25 PM) one can sell a $580 July 2012 call option and receive an $11 premium.

I know. I know. Of course, there's a chance that Apple may explode upward and you lose that opportunity.

For its part, Google, while trading at $569.71 is offering a $14.80 premium at the $580 strike price.

Of course, with both companies reporting earnings before July's expiration, I can understand some reluctance to sell the monthly contracts. Instead, there is still the rest of this week and two additional weeklies upon which contracts may be sold and pricing can be fine tuned, so that those premiums and capital gains can add to your bottom line.

I may not feel the same emotion as some others about the passing of a famous songstress, but thinking about those returns does it for me instead.

Source: Fundamental Or Technical?