Apple Black Friday to Cyber Monday
Everyone knows Black Friday, the day after Thanks Giving, but Cyber Monday? As most US residents know, Black Friday traditionally starts the holiday shopping season. Also, it means an extended 4 day weekend for many people in the US, and the stock market has an abbreviated session. In this episode, I’m going to talk about the historic rally we had leading up to Black Friday, and how Apple fared. I’m also going to talk about what Black Friday is, how it’s related to Cyber Monday, and what Apple investors can expect going into the following week.
First of all, let me explain where the term Black Friday comes from. The word black often has a negative connotation when referring to events, not so in this case, it’s all about profitability, which is traditionally noted in black ink on an accountant’s balance sheet, where losses are noted in red. So, when someone says, “we’re in the black,” they’re saying we’re profitable.
So, Black Friday is a day of profit, specifically for retailers. I’m talking about the brick-and-mortar retailers (actual stores, like the ones at the mall). Black Friday is the first shopping day after Thanks Giving, and it marks the start of the holiday shopping season. It’s a very important day for retailers, because the holiday season is often the most profitable time of the year for most retailers. For some, without the holidays, they’d finish the year in the red. So, they make it very attractive for shoppers to come to their stores on Black Friday, with specials sales and discounts. It’s tradition, actually it’s more like a retailer war.
Online retailers have a similar day, its called Cyber-Monday, which traditionally starts on the Monday following Black Friday. This is where internet-savy shoppers buy stuff from online or Internet retailers. But this year is different, because of the tough economic times we’re living in, some retailers needed to start Cyber Monday a week early, offering deals all this past week. Like I said, it’s a war, and they needed to get a leg up on brick-and-mortar retailers. For some, it’s do or die.
Retailers like MacMall and Best Buy, started offering heavy discounts on Apple products, as much as 15%. Apple countered this strategy, although Apple didn’t offer early discounts, they did authorize store managers to match discounts of any authorized Apple resellers. I guess all you had to do is show a legitimate ad at the Apple Store and it was like black gold. Quite frankly, I’d rather buy direct from the Apple store anyways, mostly because of the liberal no-hastle return policy there, and because of the Genius Bar and knowledgeable employees.
Now, even though Apple didn’t start Cyber-Monday a week early like Best Buy, they did however promote an online Black Friday “1 day do not miss” event for the web-based Apple Store. On Friday only, starting at 12 a.m., selected items had red tags above them that said “SAVE TODAY.” The deals on Macs ranged from $51 for the White 13-inch MacBook, to $101 for the aluminum 13-inch MacBook. There were no deals on the MacBook Pro, but you could get $101 off most iMacs. All iPods had discounts too, but they ranged from a pitiful $11 for the nano, to a miserly $21 for the highest end iPod Touch. Apple did sweeten the deal with free shipping for any purchase over $50.
I should mention that these discounts were pretty much in line with last year’s Black Friday event, which was also in the 5%-10% range. One thing’s for sure, the hype leading up to an Apple sales events never seems to match the savings in your pocket. But that’s what we expect from Apple, right? Premium products, at premium prices. If you discounted everything to the bone, then what do you have? Cheap Macs? Who wants that?
So, how are analysts viewing this move by Apple? Well analysts from firms such as Kaufman Brothers and Barclays Capital aren’t very pleased, and their consternation probably had something to do with Apple’s weakness in the markets on Friday, although most of Tech was weak. In my view it’s a bit troubling that the analysts think they know best how to run Apple! They make their prognostications and then recommendations to their clients, then get pissed off if Apple doesn’t follow through with their guidance. How arrogant! You see, Apple has a different agenda than the analysts, who they don’t serve. They’re probably mostly Windows users anyways.
Apple is not in the business of devaluing their products. If you’re willing to pay the price, then you’re in good standing with Apple, if not, then you’re simply not part of the Apple family. If you don’t get it, that’s too bad! I believe Steve Jobs made it very clear in the last earnings conference call, when he said after being asked about lower-priced Macs,
“We want to deliver an increasing level of value. There are some customers that we choose not to serve…”
So, there you are, if you can’t afford the darn thing, then Apple doesn’t want you! Steve went on to say there’s plenty of people out there that are willing to pay the price, and that’s who they want as their customer. It makes sense when you think about it. It can be a slippery slope when you start discounting, because you chance devaluing your product. If there’s a price war, the big loser will be Apple, their margins will be lower, and ultimately they’ll have to make decisions on their biggest differentiators,innovation. What it really comes down to isn’t the numbers, it’s the status of owning an Apple product, how it makes you feel, and how it makes you look. It’s the Tiffany, the Rolls Royce, the top shelf. Anything less simply won’t do. It’s irrational, it’s fanatical, it’s Apple.
Of course all this analysts’ banter over discounting is pointless, and pure speculation. We’ll know soon enough if the Apple mystique, the ability to hoard large numbers of mind-numbed, money to burn consumers into their coiffers, will be in tact. The reports are sketchy so far. I’ve heard mixed results from various people observing Apple Stores, most say the stores are packed, even though the malls they are in have significantly less holiday traffic. I’ve heard and seen people shoulder-to-shoulder, three deep just to look at the products. I read a post from MP3 Newswire, where author Richard Menta said he conducted an unscientific poll, he stood outside an Apple Store in Menlo Park NJ and watched 60 shoppers leave the store, 18 of them had Apple products, and 6 of them had new MacBooks. That’s 33% of all buyers with laptops! Of course this is all anecdotal, but it seems to confer with many other reports I’ve heard or read about, that iPods are dwindling, but the new notebooks are really hot.
Reports from other retailers are not so good. Most that I’ve heard, especially on the local news, is that crowds are 15% to 30% lighter this year, and far more discerning. By most accounts, this will be a dismal holiday shopping season, and that will affect not only retailers, but with all that unsold inventory, orders to factories will drop dramatically, and it will affect all the ancillary business up and down the supply chain. And that means jobs.
Ok, so let’s switch gears a bit and talk about Apple (AAPL) the stock. Where does it stand coming into the holiday season? Well, from a broader market perspective, we’ve just come off the biggest rally in the S&P over the past 30 years, perhaps it’s existence. The S&P is up 12% in this shortened holiday week, and 20% since the rally began the previous week. Apple is up only 12% in that same period. Tech generally has lagged behind most other sectors. But in the face of all the reports of strong demand for Apple products and object reports on Apple retail success, you would think the stock price would reflect that and would be much stronger.
Click the chart images to enlarge.
Now a 12% advance for Apple is nothing to sneeze at, especially over such a short period of time, and 20% for the S&P would make for a great year. But you have to remember that we’re in a Bear Market, and this is typical of Bear Market rally behavior. It was probably a lot stronger than most other rallies in the past, but that’s because the crash that preceded it was the most intense market drop in history. From a technical point of view, it was even worse than the crash of 1929, which preceded the great depression. And a lot of analyst don’t believe we’ve hit bottom yet. Now it’s a fools game to try and call the bottom, no one will really know until we’re well clear of it. But it’s an interesting exercise none the less, as I did, with tongue in cheek, in my podcast “Going to Hell and Back,” where I said the bottom would be 666 on the S&P.
Right now the S&P, as well as AAPL, are moving within a descending triangle or wedge, and with this rally we have moved up to the downtrend line, which appears to have stopped the ascent, and should provide resistance from going much higher. We also have extreme overbought conditions and negative divergences on the near-term charts. This confluence of technical factors are strong indicators that we may have a reversal. It’s no guarantee, as we saw this past week when the markets rose sharply in the face of horrific economic reports. But that just goes to show how technicals often outweigh fundamentals, as we started this rally from conditions that were the complete opposite of what I just described.
So, if I were a betting man, then I would put the probabilities on a reversal. The thing is, that the Volatility Index (VIX) is still quite high, it even advanced a little today, even though prices went up. And it appears to have support of near-term positive divergences, so I’m not willing to bet against it. Overall, it seems that we are at a pivot point. Some think that the positive divergences that spurred this rally haven’t yet fully played out, and others think that the downtrend, overbought conditions and near-term negative divergences will bring prices down again to revisit those lows.
When you have such diametrically opposed viewpoints, or a pivot point as I called it, it’s best to take a defensive strategy. And the most reliable one that I know of is cash.
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