Apple Investors this Market Blows…
…with the wind. This market has got to be one of the most frustrating markets ever! Well, as long as I can remember, at least in the past twenty years! This is especially true for AAPL. So while the S&P, the Naz and the Dow have had there ups and downs, mostly down, AAPL has often wandered along its own path, making it very difficult to trade using traditional technical analysis.
In the past fours months that the Wilderness Investors have been following the markets and AAPL, we’ve had only one short-lived opportunity to enter the market, and that was in the first two weeks of August. But even that run-up was extremely difficult to manage because it often ran against the tide of the market and technical indicators were conflicting. So the stance we have taken, for the most part, is to stay mostly cash and pick and choose our battles with short-duration trades. That strategy has paid off, allowing us to protect capital. Unfortunately, there have been few opportunities to make significant advances. If you do commit capital, I still recommend going very light, at least until this back and forth action smoothes out.
On Thursday the major indices all had what for all intents and purposes was a classic bullish breakout from their respective Wedge patterns. We had confirming market internal indicators as well, excellent economic reports, etc. And though AAPL didn’t break out along with the indices, it made a very good advance, and so I suggested a long position. And then the next day, instead of follow through, the Bulls cowled and the Bears took the markets back down to critical support levels.
So, where do we stand now?
Any moves down from here only stand to strengthen the positive divergences on the S&P weekly charts, the pressure to the upside is growing, so it’s very unlikely that we’ll revisit 1200 again. We are range bound between approximately 1260 and 1313. If the S&P can make it above 1313 and turn it into solid support, then the markets will be in good shape to move forward.
Oil seems to be a non-issue, and will likely continue its decline. Even the threat of a dual barrel hurricane in Gustav and Hanna couldn’t spike Oil (Click for an animated image). Sure, there will be rallies along the way, but I fully expect Oil to retreat below $100 a barrel before the end of the year.
It was a big surprise that Dell reported so poorly, especially in the shadow of HP, which had such positive numbers in their quarterly report. A lot of investors seem to be putting a lot of weight on Michael Dell’s declaration that IT spending is on the decline. Seems to fly in the face of HPs position. Could it be, and this is pure speculation on my part, that Michael Dell isn’t all that he’s cracked up to be? In any case, it has put tremendous pressure on the Tech leaders like RIMM and GOOG, and to some extent AAPL.
The long position trade I recommended on AAPL is in flux right now, so I have modified it to reflect the increased volatility. The current price was skirting the stop of $169, so I gave it some more room to $168 (I’ll provide analysis in a subsequent post for the factors in this trade and the modifications). An entry from here doesn’t make a whole lot of sense, but if we move back up between $173 and $176, the risk reward ratio improves. I have a lot of confidence that AAPL will make significant advances in the coming weeks, but wee need to retake the breakout we had last week before that becomes a reality. Here’s the long alert from last week.
| AAPL Long Swing Trade | |
|---|---|
| Best Entry | $173.00-$176.00 |
| Target | $190.00 |
| Stop | $168.00 |
| Risk:Reward | Medium - High |
The Medium-High designation on the Risk-Reward ratio is the categorization of the potential profit versus the amount you would put at risk. I consider a 1:2 ratio Medium, and anything over 1:3 to be High. So on the high end, if you bought in at $173 you would be risking $5, and potentially making $17 profit (greater than 1:3). On the low end, if you bought in at $176, you would be risking $8 with a potential profit of $14 (less than 1:2).
Option Strategies and Ideas
With all the volatility out there right now, I got to thinking of ways to construct low-risk, profitable trades with AAPL. If you are Bullish on AAPL, and hold the basic belief that it is unlikely that it will go lower than $165, as I do, then consider a Bull Put Spread, where you would sell a Put at $165 and buy a Put at $160. Then hold the trade into Options Expiration (September 18). You will immediately collect the premium minus the net debit (difference between premiums). If the options expire and the price closes above $165, you keep the premium.
If you execute this trade this Tuesday (September 2) there will be 18 days until the expiration of the contract. Here are the details of the trade, the P&L figures are per contract. Click here for a simple excel spreadsheet that calculates this bullish Put Spread.
| Chain | Symbol | Break Even | Max Profit | Max Loss | Return on Risk |
|---|---|---|---|---|---|
| Sep 160/165 | APVUL/APVUM | $163.54 | $145.57 | $354.43 | 41.07% |
Another way to play AAPL, considering the extreme volatility as of late, is to buy a Straddle with a strike price that’s near the money, at this point that would be $170. If you think we’ll see some healthy price swings when the big boys get back from their extended weekend, then consider this as a short-term trading opportunity, where you can make money on that volatility. If the price of AAPL shoots up and enters the “Best Entry” in the Long Alert above, then sell the position and take the profits and roll them over to In the Money Calls, perhaps October 08 $170.
If you’re looking to become a better trader, and how to best navigate turbulent markets, and most importantly, how to keep the money you have, then you should check out the Wilderness Investors Group. Click here to learn more and request membership. We have a vibrant community of professional and individual traders where you will learn how to exploit the markets and master the secrets of the trade.
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