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Zach Bass (a.k.a Ernie Varitimos) is Chief Bloviator of Investor in the Wilderness. He has 30 years experience as a Tech Maven, Investor and Consultant. Zach has been using Macs since their introduction in 1984, and investing in the markets just as long. His mission is to help guide all level of investors through the Apple Ecosphere and make sense of the markets. Zach's take on Apple, the markets, and life pursuits, will keep your mind tuned.

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Apple Investors Take Heed in the Fate of RIM

September 25th, 2008 • Related • Filed Under
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I suggested a long position with AAPL a few days ago (September 23rd), but after tonight’s annihilation of RIMM, I must retract that long position in the interest of capital preservation. RIMM missed earnings by just a few cents tonight, but it was their guidance that brought them down. And don’t think for a single minute that it can’t or won’t happen to AAPL. With RIM reporting poorly, it doesn’t look good for the rest of the S&P 500 and the upcoming earnings season.

So, you might be thinking that things will be different when Apple reports next month, because of the bailout bill and all. Well then, just consider today’s action. The markets rose from the open, mostly on the anticipation of the bailout bill passing soon, and shorts didn’t want to get caught with their pants down. But once it became clear that the bill was imminent, the markets turned and gave up a good portion of the day’s gains. I think it’s clear now that the bailout is priced in, so when it actually does happen, I don’t expect any sustained rally. Sure the S&P and Dow are likely to rally towards their respective 50-day moving averages, but I believe it will provide insurmountable resistance and repel both to continue the descent.

You have to look at the RIMM deal, and take in past experiences with Apple earnings debacles where conservative guidance is aired, and then consider this unforgiving market, and you have a recipe for disaster if you are long. Now take the technicals into consideration. Most of the indices finishing of continuation patterns in a downtrend, which means they’ll likely continue down, and AAPL has some of the ugliest negative divergences on its monthly charts that you ever did not want to see. Pretty much the same case for the Four Horsemen of Tech (RIMM, AAPL, GOOG, and BIDU) and the S&P.

After examining the Horsemen monthly charts closely, it is clear that AAPL is the weakest of the bunch and clearly in danger of testing its 50 day moving average, which is currently at 91. The negative divergences may indeed provide the weight needed to drag AAPL down. It will take a very strong impulsive move up to reverse the divergences that have formed. And in my estimation, this RIMM showing has the strong potential to cascade into the earnings of other companies set to report.

The bottom line is this: the leaders are breaking down. The bailout while necessary to stem a total breakdown, will not stop the slide. Until there is a sign of reversal, the best course of action is no action. The Wilderness recommends that until the volatility resides, cash is king.

  • Thom
    I still don't understand why anybody would be trying to trade in this environment. Fundamentals don't matter and neither do technicals. It's all news/fear/hope trading right now. Sure one could try to get that juicy bottom but it's not worth it. The easy "down" money has been played so shorting is becoming more and more risky. Going "long" is still a long way off. We are in a stagnation tumble and will most likely be there for some time. Until a true pattern shows itself, cash and maybe gold on a strong dip.

    Again, Apple is a wonderful company but the stock is gonna test the Feb/Mar lows. Big problem is, Apple sandbags it's numbers. Everybody and their dog knows this. They always beat their numbers and we saw the big dip that happened last quarter when it guided lighter with lower margin warnings. What's gonna happen when they actually MEET their numbers? It's ugly out there and it's not Apple's fault or Rimm's fault or what ever but we all breathe the same air and it's getting pretty thin up here.

    Seriously, I'd start buying real estate and rent it out. It's going to get harder and harder to qualify for a loan so more and more people are going to have to rent and will want more than an apartment. THAT'S an investment, you and the bank.
  • marcos
    Zacko, its whacko out there. I said it before and I have to repeat it again. Washington DC is pooping in our Wheaties. Markets are rising (?) and falling (mostly) on confidence and emotion not as in the case of AAPL with respect to results and expectations. European confidence is fading fast and they will have bank failures and a crisis there is emerging. As much as I would love to gloat over Europe's problems, it still comes home to roost. This is all going down to create new bottoms and new entry opportunities. I know, Zacko you deal in technicals, but I am a child of emotionals. For the next few months the emotionals are the leading indicators and the makers of your technicals.
  • wishbone
    As I recall Apple gave fairly aggressive guidance in the 4th Qtr. of last year. I think this is possible again since their market is much larger with the new 3G phone. In addition I believe more new products (Mac's) and who knows what else will emerge for the Christmas market. You have new stores, Best Buy, and Amazon all supporting the Christmas effort.

    Bottom line I think you will see apple pull out all the stops going into the 4th Qtr. They really will not have another opportunity in this market until the end of 2009 so my opinion is they will go for it. I can't of another stock I would rather be in at this time.
  • I think Apple has a great opportunity to gain market share here, especially over RIMM and desktop PC makers. But I don't think the market or investors care how that reflects on AAPL the stock. Strange times. One might argue that the company fundamentals will tend to prop up share price, but it will still likely go down.
  • BMWTwisty
    Yeahbut what if Jim Goldman is right and RIM's loss is essentially due to Apple's gain? Right now the markets suck and all you're doing is trying to time things. If you're long Apple just hang in there. It's coming back. Look at the long-term charts. Apple's market share keeps expanding, products sell and more people switch to Apple. It's getting better, albeit somewhat slowly.
  • Dave
    How about DROPPING the "HORSEMAN" crap started by Cramer? Are you a Cramer copycat? I hope not.
  • I'm not a copy cat to anyone. I have my own distinct flavor. Do you have a better way of referring to the leaders of the tech sector? Horsemen of Tech may have been started by Cramer, but it's used universally by many analysts to refer to the leaders of the Nasdaq and/or Tech Sector.

    And though Cramer getsa lot of well deserved crap, and is sometimes mistaken in his analysis, he is also often correct. And there are few people that have his depth of knowledge of the markets and insight to the titans of industry.
  • The Dude
    Until tomorrow, when some new information will cause you to change your opinion again.

    You need to rename your blog to 'Trader in the Wilderness'.
  • Christian
    Zach,

    Isn't it true that RIMM caters to the business market and is pretty well saturated there? I mean, it's going to be tough for them keep putting up those numbers every quarter. There are only so many yuppies and only so many drones. Apple on the other hand is no where near a saturation point on the iPhone.

    Moreover, the main reason RIMM flopped is they're having to compete with Apple. Apple doesn't have that problem. Ain't nobody giving RIMM a $500 subsidy per phone that I'm aware of.

    However, these points overlook the one big point you seem to be missing. RIMM is a mobile phone company. Apple, to this point, barley sees a nickel from the iPhone (sure that's about to change, maybe even this quarter), but the main driver of Apple growth and earnings is the Mac, isn't it? The Mac accounted for like 42% of Apple's pie last time 'round, right?

    I'm not saying APPL is bullet proof-- far from it. I'm saying you connecting RIMM's results with Apple's is the same as you saying Dell or Nintindo are going to put up crap numbers 'cuz RIMM missed. You didn't.
  • Thom
    Apple definately has an advantage over Rimm in that it's a diversified consumer electronincs/software company so no single egg defines the basket on paper but let's face it; Apple is iPod/iPhone even if the #'s don't say it. The Street is screwy and even if Mac sales rocket, if iPod sales show further weakness and the iPhone #'s don't make up for it them it's gonna be ugly. But that's not really the concern. We know that iPhone numbers are pretty darn good. The issue is going to be forward outlook/margin numbers. Apple and Rimm are high multiple companies and they way you get to deserve a high multiple is by growth and if Apple's margins are contracting without massive sales numbers to offset it then the multiple must contract. And in this environment that contraction is brutal.

    Another reason Rimm and Apple are better comparisons than say Dell or Nintendo is that both Apple and Rimm are status symbols, lifestyle brands. Dell is a Kia, Rimm is a Mercedes limo and Apple is the entire Mercedes line.

    Truth be told I think Rimm will do better in the short term than Apple since a majority of Rimm's business is, business which has a tendency to keep purchasing product in a decline rather than the consumer. It can't keep up it's growth which will contract it's multiple but it will keep it's core audience just fine. Hopefully the iPhone can finally solve it's stability issues once and for all and really get it's teeth into Enterprise. My 3G, even after updates, keeps crashing and a friend who's a voice broker on Exotics trades is bugging out over the crashes of his. We all love it as a consumer product but it's still not as stable as a BB. C'mon Steve-O! I don't want to switch!!!
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