The Apple Story | SMB Training

There have been very competent traders discussing signs of weakness in AAPL since it failed at 680ish. And since then there have been several excellent swing shorts AND swing longs. The price action has loosened up as the debate continues on where it should be priced coming into its earnings release this week and after its disappointing Iphone 5 release. It has now given back 85 points of the 135 run up into the Iphone 5.

Is this selloff any different than the chatter when it pulled back from 640 to 520 or is it simply another buying opportunity in a stock that has traded for years at a discount to its growth rate? Apple has about $50/share in earnings power right now and $100/share in cash. It is the profit leader in a booming smartphone market and the leader in the tablet space a category it created with much skepticism from all corners.

It is very easy to justify moves after the fact in a stock. Whether it is fundamentals or technicals you can always point to something. In Apple there has been talk of increased competition, no more Steve Jobs, blow off tops, lower highs, carrier risk, international risk, labor problems and lack of innovation. Actually, that long list kind of reminds of the long list of things working against the market in general for the past couple of years as it has continued to somehow find higher ground with each new uptrend. But I digress.

My job as a trader is to have a basic understanding of the catalysts that can move Apple and then pay close attention to the price action as those catalysts unfold. Last quarter Apple reported poor results and gave horrendous guidance (nothing new there). My initial take was the stock should trade down to 540-560. But then I watched it trade and watched it stubbornly refuse to trade below the 570 area. And within a few days it began one of its most powerful uptrends in the past several years. The earnings disappointment catalyst was used as a buying opportunity for all those who wanted to own it into the Iphone 5 release.

When earnings are released this week if they are good and guidance seems OK I will pay very close attention whether or not it can get back above 645-650. A good number and a failure at that area may lead some to get their wish to see this stock close to low 500s. I personally don’t think it will close much lower than 570 prior to its release. The risk to reward it just to good on the long side in that area and will bring equity and call buyers out of the woodwork in droves.

On the flip side if they release poor results and make negative comments about margins and their international business coming into their most important quarter of the year we may see that flush through 570 that doesn’t look back.