Apple (NASDAQ:AAPL) took it on the chin early in the session Wednesday, dragged down by the continued fallout from the sub-prime lending crisis. It’s ironic that the very company that raised guidance on Apple, was also one of the catalyst for the market’s decline, posting a 2nd-quarter profit drop of 61 percent. On the flip side, Morgan Stanley’s (NYSE:MS) Kathryn Huberty reiterated her overweight rating on AAPL and raised her price target to $210 from $185.
But the upgrade had no affect on AAPL, as it declined in whipsaw fashion to end the session down 1.48%, and like many other stocks, it dropped another 0.16% in after hours.
AAPL did manage to show good resistance to the decline of all the major indices. The market gapped down on the Morgan Stanley report, and was pushed down further with poor delivery from the nation’s largest package deliverer, Federal Express (NYSE:FDX). The numbers weren’t so bad, as revenues actually increased. What really hurt was the outlook, with earnings projections well below expectations, due largely to rising fuel costs. This will undoubtedly hike shipping costs for your new MacBook Pro from your favorite online retailer, and make you wonder if you should have just driven to your friendly neighborhood Best Buy (NYSE:BBY) or Apple Store.
AAPL and the Naz both lost their respective 50-day moving averages. AAPL's was 179.25 and the Nasdaq's was 2433, and both ended the session just a hair below. I had told my investor group to watch the Naz level closely, because it marks important support for the index, but yesterdays’ ending was not low enough to cause worry. From the contrarians' corner, the Bull-Bear ratio is inverted, which favors the future for a bullish reversal.
Tuesday morning I felt strongly that AAPL would be a good candidate for a day trade short but unfortunately, it didn’t work out mostly due to a positive report from analyst Gene Munster. But if you held that short position over till yesterday, you would have profited nicely. I wouldn’t recommend shorts going forward, especially considering the inverted Bull-Bear ratio, as that could easily come back to bite your apple.
I’m still bullish on the markets for the long term, with sentiment in the tank, an inverted Bull-Bear, and financials in the garbage heap. These are the perfect stew for a reversal. All we need now is for some positive divergences to set up in the 15 and 60 minute charts. In the meantime, it’s best to continue to play light. When the divergences reveal themselves, we’ll attack for maximum profits.
As far as AAPL goes, things are looking brighter coming off that strong bullish hammer the other day. Taking positions between 175 and 179, with a stop at 172 will provide good risk:reward propositions, as I believe AAPL will work its way up to a target of 189 by the time the 3G iPhone arrives. At that time, 'sell the news' will likely be the strategy.