What's Ahead for Apple: More Noise or a Return to Reality?

Includes: AAPL, FXCNY
by: SA Editor Rocco Pendola

Several geopolitical and macroeconomic events will likely drive the markets this week. While Libya is not akin to the Iraq war of 2003, oil prices should continue their volatile swings. And even though Japan shows signs of progress on the nuclear front alongside some optimistic long-term forecasts, uncertainty remains. It's impossible to predict if these and related global concerns, such as supply chain issues, or bargain hunting will win out in Apple's (NASDAQ:AAPL) case.

Investors will likely focus on the supply chain as it relates to Apple this week. A DigiTimes report paints a positive picture, noting that, short-term, no major issues exist at Foxconn (OTCPK:FXCNY), one of Apple's biggest component suppliers. FoxConn triggered its contingency plans (looking to secondary suppliers and tapping inventory it sets aside for these very types of hiccups) and should not experience serious issues, as long as Japan's power and radiation situation continue to improve. And, it's a no-brainer that Foxconn and others will make Apple priority number one should supply disruptions worsen. In fact, one might logically think that Apple's imitators would suffer a worse fate as a result of supply chain slowdowns.

Of course, the real Apple story, even if not the most-widely publicized, should continue to be iPad 2 demand. As of Sunday, the Apple Store website shows a 4- to 5-week wait for all iPad 2 models. Given this reality, but fully accepting that short-term noise might continue to win out, I maintain a long-term bullish position on AAPL, but a cautious immediate outlook.

Overall, Apple's story remains well intact. In fact, with America's continued domination of the tablet market, the narrative actually improved over the last month. Supply chain issues, lengthy shipping times, long lines, and sold-out retail stores will benefit Apple in the long run. It's all about pent-up demand turning into pent-up demand times two. There's something to be said for being able to get your hands on an iPad 2. That alone, not to mention the superiority of the product and its utilitarian and time-wasting capabilities, should continue to drive demand and further enhance Apple's sociocultural cache.

How to Play It

I will maintain my long-term positions in Apple stock. If the stock drops below $300, it would not concern me in the least because I still enjoy a relatively long time horizon to retirement and other major life events. And it's interesting to note that AAPL takes this type of breather every so often. Take a look at how AAPL performs historically. On the basis of this price action, the stock should set up to attain new highs as the year progresses.

AAPL Historical Price Movement (Closing prices, as of each date)

  • March 19, 2010 to April 19, 2010: $225.25 to $270.83
  • April 19, 2010 to May 17, 2010: $270.83 to $242.32
  • May 17, 2010 to June 14, 2010: $242.32 to $274.07
  • June 14, 2010 to July 12, 2010: $274.07 to $249.90
  • July 12, 2010 to August 2, 2010: $249.90 to $260.09
  • August 2, 2010 to August 23, 2010: $260.09 to $241.62
  • August 23, 2010 to January 10, 2011: $241.62 to $348.48
  • January 10, 2011 to January 18, 2011: $348.48 to $326.72
  • January 18, 2011 to February 28, 2011: $326.72 to $360.00
  • February 28, 2011 to March 18, 2011: $360.00 to $330.67

I like looking at charts, but I think the seesaw illustrated above proves informative. I left out periods where I did not think the price action was as significant as other periods. For example, the uptrend between August 23, 2010, and January 10, 2011, unfolded on a pretty bullish trajectory with only modest pullbacks. If history holds, Apple should retrace at or around $360.00 or attain new highs over the next month or so.

The possibility remains real, however, that somebody or something, somewhere, will attempt to take AAPL down this week. The existence of weekly options do not help much either. The notion that powerful call sellers pinned AAPL at $330 on Friday-- the monthly options expiration date-- is tough to ignore. With this short-term volatility in mind, I will only make intraday or swing trades on AAPL this week. If I make a move, I will post it as a Stock Talk on Seeking Alpha. Now, I am not egomaniacal enough to think that people would (nor do I want people to) follow my calls. In fact, I prefer you view them as a mix of entertainment and just another piece of information as you make your own trading and investment decisions. That said, I will be just as willing to go short AAPL this week as I am willing to go long.

Disclosure: I am long AAPL.

Additional disclosure: I may initiate short-term long or short positions using AAPL options over the next 72 hours.

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