What to do About Apple (Revised)

Every once and a while, my enthusiasm gets a little ahead itself. Yesterday, I posted about potentially exercising many of the AAPL calls I bought three days ago, but upon reflection, my plan is probably going to be more like my post on November 5th.

This post was based on a historical look at AAPL's stock price from quarter to quarter. Even though AAPL often beat estimates during the 4th quarter, the stock tends to sell off in January. It may be that all the good news is already baked in after MacWorld and 4th quarter earnings. It may also be that Q1 and Q2 are usually the weakest quarters.

Regardless, I have to respect the chart:

http://stockcharts.com/h-sc/ui?s=AAPL&p=W&b=5&g=0&id=p30442823133&a=121630432

The sell points are in red. The stock seems to consistently rest shortly after the first of the year.

I have heard that maybe "this year will be different". It is certainly possible. The iPhone is certainly a game changer. The reality, however, is that AAPL is not immune to the overall market tape and uncertainty during the beginning of the year (with more financial writedowns) is certainly likely.

An another point to consider is the distance between the current stock price and its 200-day moving average. Consider each time that AAPL has sold off this year in the following chart:











While each of AAPL's sell offs happened when the market also turned, the stock also consistently sold off when the stock was between 30% and 58% from its moving average. The average for each stock often acts as a magnet. When stocks get ahead of themselves, they often turn back towards their 200-ma.


Currently, AAPL is 43% above its 200-ma. My best guess is that the stock price will move above $200.00 in the short term, but will then move back towards its average and wait for future earnings to propel it forward again.


If you are a long term holder and patient, then this conversation is probably noise. For me, I am hoping to take advantage this possibility.