|by Wes George
How To Trade Apples
August 9th, 1999
"The fate of the world economy is now totally dependent on the growth of the
US economy, which is dependent on the stock market, whose growth is
dependent on fifty stocks, half of which have never reported any earnings."
-- Paul Volcker, Former Chairman
The Federal Reserve, 5/21/99
I sold my AAPL stock last Monday. No, I haven't turned bearish on Apple.
In July, I closed out all my long positions and moved to mostly cash. I plan to trade on the market's volatility rather than buy and hold stocks.
Sources indicate that Apple is pre-selling iBooks at an even faster rate than they did iMacs last year at this time. The iMac is no slouch either, it was the best-selling computer in June, and this trend is expected to continue through Christmas. The iMac's only real competition this fall is the iBook, in spite of the insipid and cynical PC rip-offs poised to enter the market.
Even corporate IT planners, an arena Apple left to the PC wolves, are considering the Mac platform on a scale that hasn't been seen in years.
I sold off all my Apple stock just to buy it back last Thursday morning below $53. I imagine that I'll sell it again next week in the $57 range.
I'm putting my mouth where my money is, so to speak, as an example of one way to play AAPL. You never see financial columnists, analysts, or other members of the snake-oil advice punditocracy commit to print what they're really doing with their own money. I thought I'd think different.
The explanation below is how I intend to "trade" on the new pattern emerging in AAPL. Of course, my analysis of the AAPL situation could be dead wrong, and is presented here merely for entertainment purposes, your actual mileage may vary, blah, blah, blah.
Apple has announced a stock buy back program worth up to $500 million. This doesn't mean they have to spend all of that money, nor does it say when or at what price Apple plans to execute this program over the course of the next few years.
My own observations of corporate stock buy backs indicate that Apple will find a price range at a support level and buy in that zone whenever the stock dips that low, thus reinforcing that support level.
Such corporate stock buy back plans, combined with the strong fundamentals of a company like Apple, are as good a guarantee you will ever find in the stock market that the stock won't drop below a certain point, at least while the stock buy back program is in effect.
It looks like the price level that Apple will move into as a net buyer is at $50 to $52.
In fact, it's likely that Apple has already moved in to support the AAPL price in this range since MACWORLD. Traders, adept at pattern recognition and true believers in the support/resistance model, will move in quickly to help reinforce the $52 support level in what amounts to a self-fulfilling feedback loop.
This type of triple reinforced support level (Apple's buy back program, trader's faith in support and Apple's excellent fundamentals) can only be broken down by powerfully bad news about Apple, or by a general market panic which overwhelm any attempts at support. Only one of those scenarios is even remotely likely to happen. (See Paul Volker's opinion above.)
This makes AAPL a no-brainer source of capital gains for traders who can merely buy on support and sell on the upside resistance that currently is in the $55 to $57 zone. Such witless traders should keep one eye open for possible breaking good news that may torque up resistance a buck or two. Apple could announce a clever new retail initiative, or a bullish expansion of their web-based business at any time.
Expect AAPL to show signs of an upward creep starting in September in anticipation of better than expected earnings. Meanwhile, until we get some significant news one can expect AAPL to cycle up and down between the current resistance and support levels.
For long term holders of AAPL, the stock buy back program merely means that the price of AAPL will not show its usual volatility while we await the coming good news of strong fall and Christmas sales that could ultimately propel AAPL into the $60 to $70 range.
For new investors who are looking to buy into, or accumulate more, AAPL at bargain prices don't expect to see the $40's again sans a major market panic. Do your accumulating in the $52 range.
Apple is still a company that requires news for the stock to trend up, and lack of news usually leads to a sagging price. We can now count on Apple to keep the price from falling below $50. Past blunders still haunt the long-term statistics on Apple and this serves to blind new investors to Apple's currently undervalued position and vast future potential.
Check out this completely beguiling, but entirely accurate, statistical comparison of AAPL to the main PC manufacturers at the widely trafficked Quicken site. Of course, Quicken is lame for not updating their site to include the last year to date. How many investors are turned away by such misinformation daily?
Don't let anything panic you out of AAPL. For instance, you're going to hear a lot of noise about the new Easy PC cartel that could take years to mature into a credible threat. Or the new tortured and copyright violating eMachine rip-off PC. They even appropriated the iMac's flawed round mouse!
If eMachine's bungled attempt to steal the iMac's style is any indication of what we can expect from Easy PC cartel, then Apple has nothing to fear. In fact, the eOne' is likely to become just another free advertising campaign for the Real Thing while casting E-Machine and their criminally liable CEO Stephen Dukker into the limelight of a multi-million dollar cease and desist lawsuit.
With a PE ratio of 16, the highest gross margins in the industry, piles of cash growing and units shipped trending up, Apple is one of the safest bets on the Nasdaq. Any correction that involves a flight to quality or value will disproportionately benefit Apple's equity.
Postscript: Someone just tossed a filthy, paper pulp edition of USA Today in my face. God save the trees!
Date: Friday August 6, 1999; on page 12 D. See the gadget guru's, imagine this!',
Some PC-borg jerk with a toothy grin named Andy Pargh is recommending the E-Power from Future Power, the iMac rip-off that Apple is rightfully suing to keep off the market. Andy is actually hyping the E-Power to his readers as a viable windows alternative for those borgs enamored by the iMac's "cosmetics"! What a scumball!
It really disgusts me to see USA Today give this mindlessly mainstream PC moron a forum to cheerfully tout the blatantly cynical theft of Apple's intellectual property rights, as if it were merely the latest taste test challenge between Pepsi and Coca-Cola.
Andy's column is proudly sponsored by Mercury with an ad for their gas guzzling Mountaineer SUV featuring a gimmick called "Reverse Sensing System". What a Freudian slip, RSS must be similar to the armies of reverse engineering criminals that some PC manufacturers employ to rip off Apple over and over and over again.
Please relentlessly flame Mr. Happy PC Andy at [email protected] after you read his inanely happy-to-be-stupid review of ALL the latest in computer hardware gimmicks at: http://www.gadgetguru.com/ITHIS001669.HTML
Your comments are welcomed.
Wes George will be hosting the Stock Market Investing with your Macintosh conference at MACWORLD Thursday, July 24th from 3:30 to 4:45 pm. Accompanying him will be Arnold Greenstein, a former floor trader and floor broker from the New York Futures Exchange and now a full-time day trader utilizing the Macintosh platform.
Check out the Apple Trader Forum in the new Mac Observer Forum section! Talk about Apple's stock, the markets, or give your best stock tips, just come on in!
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Wes George writes about the financial side of being a Mac nut. Wes has followed Apple's finances for the last 7 years and comes to The Mac Observer every Monday to tell all about his opinions. He is, in his own words, "inordinately fond of money." If you would like to write Wes, make it nice. Someday you might own a company that has something to do with Apple, and Wes will probably still be writing for The Mac Observer...... On the other hand, Mr. George is known to love a rousing, hair-raising debate, so send him your worst!
Disclaimer: This column is for informational and entertainment purposes. While Mr. George may be sage indeed, his writings can not be construed as a solicitation to buy, nor an offering to sell any particular stock. As with any trading in the financial markets, you must use your own judgment to make the best trades that you can. Neither The Mac Observer nor Wes George may be held accountable for trading advice.