Wednesday Worries: Apple Makes $76,103 While You Read This

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Includes: AAPL, HPQ, SPY
by: Philip Davis

$76,103 - That's not sales, that's profit!

Every minute of every day, Apple (NASDAQ:AAPL) is making $76,103 (at $40Bn a year) on the sale of $316,120 worth of products. No company on Earth comes close to that kind of metric and, overall, the stock's performance clearly indicates that but, if you listen to the MSM, you would think AAPL is finished.

We had a nice, in-depth discussion about AAPL in Member Chat this morning and we not only concluded it's still a buy but we came up with a lovely spread that has the potential to turn $3,000 into $45,000 between now and Jan 2015 if AAPL simply holds $600 - needless to say we're very proud of that as it's always nice to have a trade or two in your portfolio that returns 1,500% and we rarely get a chance to do them with a blue-chip stock like AAPL.

Note in the above chart, that AAPL is still a relative outperformer this year - shown priced against Hewlett Packard (NYSE:HPQ), Dell (NASDAQ:DELL), Intel (NASDAQ:INTC), IBM (NYSE:IBM), Caterpillar (NYSE:CAT) and Intuitive Surgical (NASDAQ:ISRG) - all good companies that have simply failed to keep up. We also like HPQ at this level, now $14.30 as REDUCED guidance has them earning $3.62 per share next year after earning $4.05 this year and that's still 25% back on your money, which sure beats TBills and we're not even counting the $18Bn in cash they have on hand, which is quite a lot when you consider that their entire market cap is now just $28Bn. Small wonder HPQ spent $9Bn buying back their own stock last year, when it was priced 100% higher.

Now, back to the markets. As we can see from our Big Chart, we're having a bit of a pullback, with the Nasdaq and Russell down 5% from the September highs and the other indices down roughly 2.5% so far.\

The Nasdaq made a critical failure yesterday as it fell below its 2.5% line AND its 50 dma at 3,082 while the Russell is right on the 50 dma at 824 and in danger of failing their 2.5% line at 820 as well. The S&P is our most important indicator and it looks like they are right on that critical 5% line at 1,440 - our only index not to fail that level and that is all of our remaining hope so we'll be watching them VERY closely this week.

Should the S&P fail - then the Dow has no support down to 13,295 so they'll make a nice short but we're still hoping we won't have to pull the trigger on that one. Going into this dip, TZA was our primary hedge in the Income Portfolio and our April $15s have gained .40 since Friday (16%), well outpacing the 2.5% drop in the Russell for a nice offset.

Otherwise, we're still long-term bullish as nobody notified us that the Fed has withdrawn QE3 and it was just yesterday that China threw another $40Bn into the markets. What's bumming everyone out this week is worries about earnings (not so bad so far) and all these TERRIBLE pronouncements from the IMF's meeting in Tokyo this week on the state of the Global Economy. At PSW, we've been telling you the Global Economy sucks for months so it's not surprising to us but it seems to be shocking the sheeple - who are now running for the exits but, as noted on the Big Chart - certainly not at anything like an alarming pace so far.

Click to enlargeIn order to climb a wall of worry, we need to first recognize and accept those worries and what we have here is the beginnings of capitulation after a very long period of denial (where bad news was good news into the Fed). This is why we prefer to buy now with a 20% downside cushion - we're a little early to call it a bottom but the FACT of QE3 means we may not make too low of a trough on the way down so we're using this earnings season to do a little bargain hunting.

Tell us when something new happens that we should be worried about but, so far, China's slowdown we've been discussing all year, Europe's mess is 2-years and counting, California Cities in debt crisis also old news, Japan staggering under 220% debt is bad, but just 10% worse than 2 years ago and 7.8% US Unemployment is the best reading since Obama took office and the only thing we have to worry about there is whether or not Jack Welch's head will explode if we go down to 7.7% next month.

So far, earnings are coming in better than expected - we'll see how the week plays out but this correction may be shallow indeed if it turns out we've underestimated the recovery in the US and overestimated the impact of China and Europe slowing down.

Disclosure: I am long AAPL, AGQ, GLD, XLF, FAS, BBBY, SVU, QQQ, BTU, X, CHK, HPQ, AA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Positions as indicated but subject to change (fairly even mix of bull and bear positions - see previous posts).