Is It Time To Take A Bite Out of the Apple?

Apple- to buy, or not to buy on this big sell off- that is the $billion question out in front of us right now, and I’ve been thinking about it all morning.

Here’s why AAPL has gotten crushed in the last week- it’s a consumer stock, and Wall Street has decided after being continuously wrong for the last five years about the death of the consumer, the consumer is finally dead.

My personal unscientific survey does not agree. I have gone to a couple of malls of late and canvassed a few of my friends- the only ones curtailing spending were those associated with the residential building market- they are in a full blown recession bordering on depression- it will be tough sledding for some time. The malls I’ve been to lately have been jammed.

However, Wall Street feels that with oil prices rocketing, consumers overleveraged on their homes, and savings rates low (that’s a whole other issue- in my view, US consumers do not use savings account for savings- they put money in homes, 401ks, etc to create wealth. Not figured in the US Govt’s savings stats), the US consumer, who represents 82% of GDP, is dead. Hence, APPL isn’t going to sell as many iPods, iPhones, and Macs as previously thought.

So, is this a buying opportunity in a stock that has been extremely good to OTC Journal subscribers, or an ongoing problem?

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Here’s a chart of the big fall move in the stock- if you had jumped in when I did, you participated in a big way.

As you can see, the $161 level was the .382% retracement, which should be a good level to jump in.

This is just a seat of the pants analysis, but I believe there are a lot of investors who have lost a lot of money betting against the US consumer.

I am still holding my Jan 130′s calls I paid about $12 for. I just jumped into 10 Jan 155 calls at $16.60, which is probably way to much to pay for those options. If the stock trades back up, those options will probably move about $.50 for every $1 the stock moves.

Today’s 5 point drop below the 38.2% retracement level is a little troubling, but these numbers are not exact- they are ranges. If the stock trades down to $150, I’ll probably take my loss and sell. If not, I’ll hang in there for some positive news. Techs are getting hit a bit today as money is starting to roll back into the oversold financial sector.

This will allow me to hold those options to and through the Holiday season, which I suspect will be great for AAPL.

Pretty risky with all the negative press, but the sell off is no doubt being fueled by hedge fund managers desperate to make sure their gains are logged before the stock really hurts them. Remember, these guys live month to month, and their mantra is “don’t lose money”.

I’m jumping in, realizing I’m taking a bit of risk. Comments and questions are welcome. I might add to the position if the stock starts showing signs a health.

4 thoughts on “Is It Time To Take A Bite Out of the Apple?

  1. i cannot imagine apple’s sales slowing a bit, everything they produce seems to be smokin’ hot…consumers will find the money if it’s something they really want. simply a stock on sale!

    Editor: Sold of late in the day, but up big today on news of strong iPhone sales in England and news the iPhone will be offered in China. Looking like a great trade.

  2. Was just looking for your viewpoint, and here was a new blog entry — thanks!

    But – doesn’t it make sense, that falling home prices and rising gas prices will have some impact on big-ticket consumer items (laptops, high-end cellphones, etc)? Do you feel the stock is oversold now, or do you feel it is fairly valued for a new market reality?

    Editor: As I stated, I bought yesterday, and it’s bouncing big today. Looks like a great trade right now. News of strong Iphone sales in England and news the iPhone will be offered in China have the stock up $10 in the early going. So far, a great trade.

  3. Hi — Thanks for the great stock tips and advice.

    I have a general investing question regarding your thoughts of the current market and how it affects small/mid caps. With the credit crunch and talk of a possible recession — large takes are slowly discovering gravity — however i am not sure how small caps react to this.

    Case in point — TTGL. Its usually market insensitive, but i am not sure if it is a hold (my avg cost is $1.2) or take profits and wait on the sidelines and jump in on the next move up.

    I would appreciate your thoughts. Thanks.

    -Joe

    Editor: Seems to me like most of the damage has been done, and the stock has held up quite nicely. There is a huge amount of stuff going on at the company. If the market continues tanking, it will eventually fall victim to the “cash at any cost” mentality. However, my guess is it will go higher as the sell off has already been pretty nasty, and is due to reverse. It might take a little time for stocks to resume their upward climb- so there could be a month or two of sideways trading. If it were me, I would be reluctant to give up that $1.20 stock- if you can see holding it for over a year, your profits go up quite dramatically as you are taxed at a long term capital gains rate when you do sell.

  4. Thanks for all the great advice. Sorry I didn’t listen and get out of CPNE. I’ve been wanting to ask you this question for a quite while. You mentioned about a month or so ago that you were having a good time trading the QQQQ’s. Just how are you doing this? Are you using stradles or other trading ideas? Maybe you could do a column to let us in on your trading ideas.
    Thanks
    Ed C

    Editor: I haven’t traded the Q’s for a while now, but if I were to trade them, I would go long right now. I don’t do any fancy straddles, but they work well to hedge your bets. The markets have only been this technically oversold about three times in the last fifteen years, and each time yielded a nice bounce. I follow Adam Olensis of http://www.theagiletrader.com for trading advice on the QQQs. I think I pay $29 per month for his advise, and he comes up with some great information. It’s worth the money without a single trade for me. His technical model as been off a bit of late. In a kind of sideways or shallow trending market, he is very good. If I decide to go long, I will post it in the BLOG. I got a great trade for 15 points on some AAPL calls week before last, so I do some sort term trading.