Good morning and Happy 2008! I bought at the close of 2007 (literally, at the close, with minutes to spare) and held until today. I am unlikely to sell anything for a trade unless $196 is broken and although I anticipate some volatility if the broader markets stage a swoon, AAPL’s a go-er to $300 from here sooner than later, albeit with some wild swings along the way. My outlook has changed little from a year ago when I posted forecasts here in AFB through to 2010 and I’m sticking with my outlook with a mild upwards revision.

The game du jour has been to run AAPL up’n'over $200 and then sell it off. Traders enjoyed this game in the final week or so of 2007 because there was nobody to whipsaw them out of the trade, with the big boys skiing in Aspen or (in the case of some hedge fund managers) nursing their losses, but now that we’re into the start of 2008 I expect some big money to pour into the market in both directions as the hedgies and quants try to seize the agenda right from the outset and make the markets work their way, in their interests.

This could result in a wild run-up of $10-15, or a rapid sell-off to $180.

The “clever” trade for early 2008 was to buy sub-$200 and sell in the run-up to Macworld, and then buy the “sell the news reaction” afterwards for a run-up into earnings, but this strategy has now become so well-discussed and widespread that its pretty much a given and is probably itself going to be the subject of predatory manipulation by larger players. Perhaps the alternative trade is simply to recognise that the earnings growth machine is only just revving up, courtesy of the Mac market share increase and iPhone deferred revenue/subscriber revenue sharing and step aside from being whipsawed by these crooks, and simply hold as large a position as you can comfortably achieve which won’t result in you being whipsawed/liquidated by wild 10-20% swings. Perhaps a steady hand and less trading is the order of the day for 2008. Too many eyes are on AAPL now, and too many algorithmic strategies are being employed to profit from events and moves for smaller investors and traders to work around. Recognise that we can and will see AAPL traded around and manipulated by funds with deep pockets and hedgies/MMs with massive exposure to January calls in particular, and expect some outrageous shenanigans to ensue as these multiple conflicts of interests are worked through the stock.

Only one thing is for sure: Apple is growing earnings by 60%+ YoY and is going to continue to do so for some time to come, whatever its current market cap might be. The market is baking in 18-20%. That’s still what I call a massive opportunity, and a massive disconnect. Main Street is catching up with Wall Street which is slowly only now just catching up with what AFB members were thinking and discussing a couple of years ago. We still hold the advantage here. We know why AAPL is still cheap here, even while late-comers like Stephen Coleman and Georges Yared crow about their “expertise” in picking AAPL up in the $90s last year and are now calling for it to go to $300 and $600.

Rule #1: do not get whipsawed out of your stock. If the market collapses, all stocks are toast. We invest because we believe the market is going up. Otherwise, we would be sitting on cash, or gold. On the assumption the market will continue to go up and that stocks remain a good investment, AAPL is the best stock in the market, and the most consistent and reliable earnings growth machine in the world.

Stick with AAPL, but recognise that it may not pay to try and trade yourself into profits as much as it has done in the past unless you have deep deep pockets. Trade too heavily, and you risk getting whipsawed by Wall Street’s most crooked - and hell, there’s a lot of hungry bears around at the moment.

Bon voyage and good fortune to you all in 2008. May all your investments avoid slipping up on more sub-slime meltdowns.

By the way, if you think it might be worth getting some of this out there, then DIGG this topic now and lets get some discussion going on the broader net.

Nice post, Tommo. I’d just like to add that when max pain is far below the stock price, I’ve seen people say that max pain will have no effect, because option writers have long ago covered these options. This simply cannot be true. Yes the options are covered, but the expiry is just as large a discontinuity impulse to disrupt the market. The option writers will still be looking to optimise their exit. I believe there will be large shenanigans, including immediately post expiry when there may be large amounts of stock assigned which the recipient has insufficient cash to keep. If the oscillations are nice and large, it may be sufficient to fuel a multi-week artificial trend, followed by a sharp return to a fairer price.

I monitor news/analysis and read about AAPL on nearly 30 websites daily. For those who may wonder which opinions/analysis deserve more weight than others, I have to say that what Tommo has written here is easily the most insightful look into AAPL in early 2008 of anything I’ve come across. It rings true and contains a few tidbits that are entirely and exclusively original.

Happy New Year Tommo and the AFB gang.  One of the best gifts I received in late 2007 was learning about AFB, and I look forward to sharing the highs and lows of AAPL with all of you throughout 2008.

And I’ll start by taking issue with your long term projections, Tommo, not because I can confidently make a different prediction, but because your post seems internally inconsistent. 

On the one hand you make the exact same case I make for buying and holding the longest LEAPS possible: 

“Only one thing is for sure: Apple is growing earnings by 60%+ YoY and is going to continue to do so for some time to come, whatever its current market cap might be. The market is baking in 18-20%. That’s still what I call a massive opportunity, and a massive disconnect.”

But then you reconfirm your year-ago long term predictions (which have already been proven to be too conservative) which show a 75% PPS gain in 2008, but then a 30% gain in 2009 and 25% gain in 2010.

So when you say “some time to come” do you really mean “one year”?  I don’t think Apple’s hypergrowth is going to end in 2008, and I doubt you do either. 

But you are falling into the same conservative trap that creates the massive opportunity, which is to follow the golden rule of conservative long term projection:  never assume growth in excess of 25% more than one year out. 

I realize that someday the music will stop.  Someday AAPL will fall, and fall hard.  But at this moment, I don’t see a limit to growth in the next several years.  If anything, I predict more growth in 2009 then in 2008 as the full impact of passing the tipping point in the OS wars really unfolds, and the full impact of the iPhone really unfolds. 

In a world without Steve Jobs and Apple, I might believe that the PC and phone markets were starting to “mature”, and that there might be limited growth if “everyone has a computer and phone”.  But if 2007 taught us anything, it is that   Apple is driving huge innovation which is likely to completely change over the next several years what device(s) we put in our pocket, what device(s) we have in our TV room, what device(s) we carry around with us and what services we use these devices for.

This game of redefining the computer/telecom/media industry is just beginning, and right now, its Apple’s game to lose.

Happy New Year! 

FWIW, I believe THERE IS NO MACWORLD TRADE anymore. At least not for smaller traders and investors. The phenomenon has been way too widely discussed already and the trades surrounding it are now layered like an onion: trying to peel them back is only going to make you cry, believe me. Yeah the stock could run up to $225 prior to Macworld. Or it could drop to $180 two days prior in an anticipatory sell-the-news-before-its-news game.

I can’t predict, nor time, such action. And I doubt many people can unless they are going to watch a tick-by-tick chart second-by-second minute-by minute day-by-day for the next two weeks in order to make sure they can enter, and exit, such a trade profitably.

Witness how even Fortune is discussing the now-fabled Macworld Trade .

There may be 5M phones sold. There may be 3M. There may be a MacBook thin, or a MacBook fat. Nobody knows, and whatever the numbers, whatever the products, the market will do what the market will do regardless of how many phones were sold. You have to invest in this company now, for its earnings growth over the next few years, not for stupid sales numbers and other meaningless “round number” metrics, nor on whether a MacBook “nano,” or “thin,” or “whatever” is released in two weeks time.

The analysts pumping Macworld and Macworld trades are the guys getting their people in for a trade. They will probably be the same guys screaming the sky is falling when the iHyperdrive doesn’t appear. Do not get distracted by them, nor allow yourself to be whipsawed out of your investments based on any of their expressions of grief/suicidal disappointment/teeth-gnashing angst at whatever Jobs does or doesn’t announce on stage. These guys have been wrong for years, and issue BUY and SELL and HOLD recommendation based on what comes out of their rear ends when they sit on the toilet, not on fundamentals nor on any insight or understanding of Apple or its customers.

They’re clueless. They’re the herd. Don’t be one of them. Don’t be cow. Invest for 2008/2009, not for a Macworld trade, at this point.

Earnings are what matter, and we’ll find out what they are on the 22nd of January, not at Macworld (though Jobs may drop a hint or two as to what to expect). There may be extreme volatility around Macworld, but unless you’re a multi-million/billion dollar fund, you are very unlikely to be able to time your trades profitably now that the big boys are running their computer-driven trading programs and the media have hyped up the Macworld trade for the last couple of weeks.

They’re trying to steal your money. Take off the blinkers and focus on the longer term. AAPL is a steal at $200 given its earnings growth for the next few years. Anyone trying to “sell” a trade without talking about the longer term in the stock is simply trying to talk up a short-term position, and there’s plenty of that going on right now.

Be careful. Be paranoid. Do not get whipsawed out of your stock, but do expect some wild swings, the possibility of jaw-dropping drops, and the likelihood of a buying panic sending the stock parabolic.

If you can time all of that, you’re a better trader than me. As far as I’m concerned, this is a time to stay in, lock down positions, and prepare for a bumpy ride with the comfort of knowing that anything which happens in the next few weeks is just part of the ride up to $450.

If you have any cash, keep it. That way if the crooks get a tumultuous sell-off going you can laugh and buy instead of weep and cry. If you don’t have any cash, and you are doing something other than long-term investing, don’t try and trade your way into outsized profits from over-leveraged positions, just take a 6-9 month outlook instead and position accordingly.

If you get a margin call and a liquidation notice after a 20% fall, you will never forgive yourself for missing out on the next 100% up. Good luck! And remember, don’t over-trade yourself silly this month unless you are very, very good.

Roll on the $2+ Q1 08 earnings report

As usual Tommo spot on.  forget gaming the ups and downs of this month. We need to play a game in which the playing field is level. With the massive amounts of money we have seen the hedgies can throw at Apple nothing will surprise me this month… Therefore I will hold my deep in the money Jans which I will exercise.. I have some Jan 170’s and   Feb 200’s but mostly 2008 itm calls as my core position. Interesting is that there are few itm Put options OI for Jan 08 but 600,000 call itm’s… IF $200 holds through to OE could be a massive runup at OE to cover or deliver. However about 1/3 of the itm calls are between $175 - $200 so the temptation for the bears and gamers is great… It will be a wild month.  :o

I wrote the following just a few hours ago:
[quote author=“Tommo_UK”]FWIW, I believe THERE IS NO MACWORLD TRADE anymore. At least not for smaller traders and investors. The phenomenon has been way too widely discussed already and the trades surrounding it are now layered like an onion: trying to peel them back is only going to make you cry, believe me. Yeah the stock could run up to $225 prior to Macworld. Or it could drop to $180 two days prior in an anticipatory sell-the-news-before-its-news game.

With the sell-off down to $192 today there should be a decent “Macworld trade” after all. Providing support around 192-193 holds today, then this suck-back is the perfect opportunity to get into the stock.

The late-December holiday traders who bought around $200+ were taken out back and shot today in a $10 rout from the high. My recommendation not to do any trading in the short term is hereby withdrawn. Opportunity abounds now, though whether its from here (around key 192.60 support) or ten bucks lower is anyone’s guess at this point.

The point is, you just got handed the stock $10 lower than where it was on Monday. If you still believe in a run-up to Macworld and beyond, now’s your chance. The risk of getting caught in a “pre-sell the news” reaction by the pros just got slashed with this sell-off. Any further downside will probably be as a result of the NDX100 crashing through longer-term support, in which case anything you hold will turn to dust, not just AAPL. Trade and invest accordingly; never look a gift horse in the mouth.

Interesting.

I think Tommo’s Digg post has been, somehow, extinguished.  It was moving up the upcoming Apple stories all day.  The link in this tread still goes to it, but otherwise I can’t find it on Digg.

It was running neck and neck with “Creatively Speaking: Model’s memoir written in Apple store”

Hmmm. My positive thoughts about Digg may change if this sort of editing goes on.

[quote author=“granny smith”]Interesting. I think Tommo’s Digg post has been, somehow, extinguished.  It was moving up the upcoming Apple stories all day.  The link in this tread still goes to it, but otherwise I can’t find it on Digg.

Speak to Daniel Dilger over at RoughlyDrafted if you want to hear about Digg editing and real-life shenanigans…

Nevertheless, over 2500 people have already read this topic here on AFB in the few hours its been up (in part thanks to Fortune/CNN linking to it courtesy of Philip Elmer-DeWitt’s article - thanks Philip!) . DIGG or no DIGG, that’s a great number

[quote author=“Tommo_UK”]FWIW, I believe THERE IS NO MACWORLD TRADE anymore. At least not for smaller traders and investors. The phenomenon has been way too widely discussed already and the trades surrounding it are now layered like an onion: trying to peel them back is only going to make you cry, believe me. Yeah the stock could run up to $225 prior to Macworld. Or it could drop to $180 two days prior in an anticipatory sell-the-news-before-its-news game.

I can’t predict, nor time, such action. And I doubt many people can unless they are going to watch a tick-by-tick chart second-by-second minute-by minute day-by-day for the next two weeks in order to make sure they can enter, and exit, such a trade profitably.

I’ll go there.

Question: If we all think AAPL is destined to surpass $300 in 2008, what the heck does it matter whether or not the stock dips or rises leading up to or following the expo?

I’ve tracked the expos and their trading phenomena since the time when there were two expos a year with the summer expo in Boston. It’s impossible to predict the “expo effect” and I agree with Tommo it’s not worth the effort to try.

For buy and hold investors, the movements mean nothing. For traders, I think there are far too many variables in the mix. I’m going to sit back and watch, expecting to be both amused and perplexed by the price movements around the expo announcements.

very nice

i am your audience tommo.

the only convern i have is this:
1) US ecomonic status (doom)
2) the players (i’m “smallest” guy), again US, are about to have their ass political party handed to them.

they won’t like that in any manner shape or form. and will not help the Change to proceed or to succeed.

clear enough?

comments please.  i’m holding long (‘09 or beyond), at least that was my plan—but i’m on the dole, how do you say it, “margin”?  and it ain’t my margin.  but you needn’t address my personal situation/comments unless you wish to send me donations. 

even personally, i’ve the felt that the entire US attitude and structure is long overdue for serious, how you say, “correction”.

i’m not too afraid as i’m a guy who has at many times had nothing, i got a little cash in court (20k) and i bought aapl may 11 -because i know the company very well.

there, now am i more clear?

i feel that aspect, a possible recessiion, depression, was not adressed in your posts. 

what do you think?  i respect your views.

[quote author=“Tommo_UK”]With the sell-off down to $192 today there should be a decent “Macworld trade” after all. Providing support around 192-193 holds

Well it broke that key support yesterday and we saw the expected trashing down to $180 as a result.

If $180 holds, then this is the buy of the year (all 6 days of it! Lol). I am a buyer on Monday, with a loose stop a few bucks lower.

This is no Macworld trade, but a long-term trade. $180? C-h-e-a-p! You gotta buy this the way you bought $150 in October, with the same close eye on any further technical breakdown in the broader market to which AAPL will definitely not be immune.

Did anyone notice once AAPL went through 182 and past 180, there was a significant increase in volume. I am inclined to believe that we saw a lot of capitulation happening. I’m not going to call a bottom here (I already did that about 10 bucks or so higher ) as we could see more, selling but with a lot less conviction. I do think that we are in for some sort of bounce, but this could well be followed by a sell-off back to the lows of Friday, if not a little lower.

[quote author=“wheeles”]Did anyone notice once AAPL went through 182 and past 180, there was a significant increase in volume. I am inclined to believe that we saw a lot of capitulation happening. I’m not going to call a bottom here (I already did that about 10 bucks or so higher ) as we could see more, selling but with a lot less conviction. I do think that we are in for some sort of bounce, but this could well be followed by a sell-off back to the lows of Friday, if not a little lower.

I think the key here is that there was genuine capitulation this week, with all the hot air courtesy of all the “Macworld trade” pumping in the media during December coming completely out of the stock. Everyone was doing this trade, that’s why I started off the year by beginning this topic and saying it was over, that it wasn’t worth doing any more.

I changed my mind after the initial $10 sell-off because support held, and the markets stabilised, but the employment number was always going to trump any individual chart action and sure enough when it came in as bad as it did the writing was on the wall, which is why I ran for the exits and just took the day off.

Certainly AAPL isn’t going to buck the broader market by much in this kind of environment, but on the other hand you rarely get a second bite at the cherry like this, and if the Fed, or Bush, do anything to inject a little bit of hope into the market next week, then going into CES, Macworld and earnings, you have to feel there’s room for a pretty significant rise here.

The $180 level is key short-term though. Its the lower Bollinger Band and has usually been the bottom during shorter-lived pullbacks as opposed to elevated selling, so its as good a buy point as any other in my opinion, given the scale of the rout from the Upper to the Lower in just 4 days of trading.

I think 177-178 should be decent support for a spike down intraday, but beneath that there’s nothing between here and $170.

$180 looks like a buy, with a tight-ish stop if nearby support breaks.

Either way, unless there’s a genuine recession and all stocks get hurled completely out of the window, then AAPL’s a buy. If you think there is a recession looming for real, then best to just go on holiday for a few months - there won’t be anything worth investing in except K and KO

As far as I’m concerned, any recession stops at the door to the Apple Store. People will always need new computers, iPods, and phones, and they’re turning increasingly to Apple for those. As people become more choosy about what they spend limited resources on, they’ll buy products which are both price competitive, practical - and reliable. That’s Apple all over. Macs of a similar spec are cheaper than PCs, iPods priced the same as competing players (at least the major ones, not cheaper knock-offs) and the iPhone alone looks bit pricey, but that’s easily fixed - the margins on it are obviously high, especially given the subscriber revenue sharing deal.

Apple is the best company to face and deal with any slowdown or recession and will thrive in such an environment. Traditional OEMs like DELL and HPQ are going to suffer the most. Apple will not just survive any recession, but prosper proportionally in a outsized fashion, especially given its retail expansion in Europe and beyond, thus helping ensure continued sales growth.

Invest in AAPL for way beyond Macworld at this point. The Macworld trade is kinda irrelevant now.

As Munster and Wu said after yesterday’s 7.5% drop:

“The market is spooking itself,’‘ said Gene Munster, an analyst with Piper Jaffray & Co. in Minneapolis. “It’s natural for people to get nervous when everyone is getting nervous.’‘

The sell-off today “appears to be panic selling,’‘ Wu said in an e-mailed response to questions. “Consumer spending may become weaker, but we continue to believe Apple is positioned to do relatively better than most.’‘

Wu and Munster are among 25 analysts tracked by Bloomberg who recommend investors buy Cupertino, California-based Apple’s shares, which more than doubled last year amid optimism for sales of its Macintosh computers and iPhone handsets.

“I don’t see any reason why Apple’s momentum and ability to buck the trend is going to change,’‘ said Munster. He predicts Apple shares will climb to $250 this year on demand for Macs, iPhones and iPod media players.

I’m making this a temporary sticky topic.

Great evaluation Tommo. I think it is best after the battle to calmly think for a day where we are positioned.  Luckily I got out of all my January calls earlier in the week and began buying Feb 175 calls yesterday from $183 down. I, like you will continue to do so Monday as I expect follow thru selling, margin calls etc. in the first hour. Apple will earn over $2.00 this past quarter and my guess is $7 bucks earnings for 08.  That gives Apple a forward PE of 26!!!. Growing at least 40X the price of $180 is laughable. So even if it goes to 170 over the next week the analysts WILL HAVE to raise their forcasts after earnings and should, barring a major stock breakdown, pull us up again.
If we are already in a mild recession then we are starting to pull out and remember the market is 6 to 9 months ahead of the curve

these are only my guesses on how it will play out.. I could be, and constantly am, completely wrong