Profiting From Apple's Pullback...Again

Jul. 9.12 | About: Apple Inc. (AAPL)

"See Jake that is the one thing you never got, it's not about the money, it's about the game. The game between people..."

How true it is Gordon, great way to sum up the market. Simply put it is a game. Who thinks which stock is worth more, and by how much? Which computer will sell first, and which mathematical formula will trigger a buy, which will trigger a sell?

Today it seems it is much more about computers and tests of wills then fundamentals and earnings of a company. Which company shall I short today and how many day traders are out there compared to 20 years ago? How about even 5 years ago? What does all this mean? Opportunity.

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

Today I am discussing how I have played the emotions over the past 6-8 months on certain stocks, one of which happens to be Apple (AAPL). I have written quite a few articles on selling calls against your position, and when I was wrong (only on the dollar amount not the theory) I did eat my crow. The timing is in the air for another pullback for the monster (which I am bullish on) named Apple.

If you look at the charts from earlier articles linked above, there are a few factors each showed that were telling signs for a pullback from Apple.

Gains of 18% or more in less than 90 days:

Ok technically we are not there yet, but the stock has climbed (since it's last pullback) from $530.38 on May 18th to $609.94 on July 5th which is about a 16% rise. It did give back a few bucks on Friday as well. The point is following history it is due for a pullback again.

History repeating itself:

Check out the spreadsheet below from an older article I wrote.

DATE PRICE CLOSE  
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
Click to enlarge

Now look at the history from 5/18 through 7/5

DATE PRICE CLOSE  
18-May-12 530.38  
30-May-12 579.17 Huge Jump in less
31-May-12 577.73 than 2 weeks
8-Jun-12 580.32  
12-Jun-12 576.16 Stayed in a holding
13-Jun-12 572.16 pattern for a few
14-Jun-12 571.53 weeks here
15-Jun-12 574.13  
19-Jun-12 587.41 climbing again
27-Jun-12 574.5  
28-Jun-12 569.05 slight pullback
2-Jul-12 592.52  
3-Jul-12 599.41 Up 15%+ in
5-Jul-12 609.94 less than 60 days
Click to enlarge

Although this time around it has not been exactly the same (rarely is) you can see the overall climb is very similar to the way this stock has performed over the last year or so.

I know I will catch alot of heat for going down this road on Apple (again) but the fact is I am bullish on the stock, yet I like to take advantage of the history of it as well as our own emotions. People (and computers) buy and sell stock based on how they feel and certain parameters (golden crosses, death crosses etc) that come into play. Unfortunately, it is relying less and less on fundamentals as a primary factor.

This concept has worked on other stocks such as Sirius (SIRI) and most recently SPDR S&P 500 Trust ETF (SPY) in which I predicted a short term pullback and the stock was down almost as much as $2 on Friday alone.

The point is there is money to be made while remaining bullish on Apple, and many other stock out there. The strategy I typically employ is selling covered calls against my position, that are less than 60 days to expire and over 15% higher than the peak (when the stock is up as it is now). But at the end of the day, remember this is just my opinion. It is YOUR money and I suggest gathering as much information as you can and make the decision YOU feel is correct. "Go to Work"

Disclosure: I am long DELL, SIRI.

Additional disclosure: I have purchased Puts against SPY