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Time to Short AAPL – Not!

By Rick Ackerman Posted on September 25, 2012, 12:01 am EDT Last Updated September 25, 2012, 2:34 am EDT

H.L. Mencken famously wrote that no one ever went broke underestimating the intelligence of the American public.  With kids lining up at Apple stores last week to buy the latest iPhone, mightn’t that be a timely cue to short Apple shares for around $700? To us, at least, it seems pretty stupid to pay Apple’s inflated prices when one can get a perfectly good, discounted Android phone from Samsung for half the price. And speaking of Samsung, we think Apple may have darkened its own karma when they sued their Korean competitor over a few trivial patents, extracting  a billion dollar settlement  (and never mind that, on appeal, Apple is seeking yet another $700 million from the same lawsuit). World-beating companies that pride themselves on innovation shouldn’t have to sue the competition for billions of dollars over design features that any Carnegie Mellon or Pratt sophomore would have incorporated in a phone-display schemata.

So are we shorting Apple shares?  Quite the contrary, actually. On Friday, even as we advised subscribers to cash out of a winning AAPL bull calendar spread initiated well below current prices, we were attempting to replace it with some Nov 730 -Oct 730 calendar spreads legged on for $8 or less.  The spread would yield terrific odds if Apple shares were to rise by another $30 over the next few months. (Click here for a free trial subscription that will get you real-time notifications.)  Apple looks like a shoe-in to go at least somewhat higher in the days ahead, having finished last week above $700 for the first time.

And yes, we are well aware that the company has embarrassed itself by releasing a map application with the new iPhone that totally sucks compared to Google Maps.  Of course, the kids who are lining up to buy iPhone5 would probably line up even if there were reports that the phone melts when exposed to sunlight. Like the latest Hermes handbag, the new iPhone is a must-have – and not just for a few thousand women who can afford such things, but for a cult of millions.

Ignore the Screw-Ups

There are other reasons not to short Apple, no matter how badly the company screws up. For one, bears will be bucking the stock’s 80% institutional ownership.  These are shareholders who would sooner cut off their left arm than sell their stake in Apple, and they have effectively reduced the “float” of the world’s largest company to a fraction of total capitalization. For two, there’s the deal with China Telecom that will be worth perhaps $6 billion in instant new revenues. Ba-da-bing!  On that one alone, AAPL stands to rise by perhaps $100 before Chinese iPhone4’s go on sale in March. There’s also the seeming inevitability that Apple hardware and billing software will eventually find its way into your television’s circuitry.  For now, Comcast is resisting providing set-top access to Apple, since they are well aware that the music industry’s Faustian bargain with Steve Jobs cost producers not just an arm and a leg, but a gallon of blood and a bunch of vital organs. But how, you ask, will Comcast or perhaps another cable provider be able to resist the kind of cash flow that a deal with Apple would bring?  Answer:  They cannot. And will not.

Under the circumstances, we’ll short Apple only tactically at Hidden Pivot rally targets, with the goal of getting a step ahead of the take-no-prisoners downdrafts that the stock’s sponsors use occasionally to shake the tree.  Otherwise, warts and all, AAPL will remain a no-brainer “buy” presumably until the trumpets sound from on high.

  • Dave September 25, 2012, 8:42 pm

    At least Rick didn’t need to use LSD to become enlightened as Steve Jobs did.
    http://www.wired.com/cloudline/wp-content/uploads/2012/03/apple-think-different.jpg (??)

    • Rick Ackerman September 25, 2012, 9:13 pm

      I never used LSD other than recreationally, Dave.

    • gary leibowitz September 25, 2012, 10:12 pm

      Purple haze in my hazy teens. It was the 60’s afterall.

  • gary leibowitz September 25, 2012, 3:39 pm

    I find it disconcerting to hear all the AAPL bashing. A company that is this successful and profitable for many years should be lauded, not dismissed with envy.

    Just like the market in general, if you don’t agree with the outcome dismiss it as some anomoly. I know everyone here would love to see AAPL and the general market fall in flames. It is a bit perverse but understandable. The fact remains though that no matter what happens in the future your notion of “what should have happened” is already wrong. To dismiss these facts as manipulation only reinforces a rigid position, and doesn’t allow you to adapt to change.

    Whatever doesn’t go your way is a conspiracy to prevent the law of nature to take place. When it does go your way the forces of nature were too powerful to control. A sweet logic that is fullproof.

    There is so much meanness on this board. It’s as if pain and suffering should be felt by everyone immediately to satisfy your sense of fairness. The “fire and brimstone” preachers proclaming to its flock that mere repentance is not enough.

    I am afraid you will eventually get what you wish for.

    If people here can dismiss AAPL as a shame, and ignore their profits and margins, while waiting for any misstep, than I for one find that sad.

    Using emotions as the basis for betting is not logical.

    As for Steve Jobs, he single handedly lost the MAC dominance decades ago. He single handedly re-launched this company into a mega success. Luck, timing, finding the right balance? Who knows. Will they continue their dominance? Most likely not since competitors steal your edge and start innovating from the original idea. The spark was AAPL’s, the surge to improve upon that spark draws competition. In the end AAPL will not have the dominance, but not many companies ever do hold it.

    • gary leibowitz September 25, 2012, 6:31 pm

      One prior point on mutual funds. I read that while 40 billion went out of mutual funds, 120 billion went into ETF’s this year. Not sure if the loss in equity funds from mutuals got put back into ETF’s. Most likely not, but there is a huge flow of net money into ETF’s that more than offset the losses in mutual funds.

      Looks like we have a rally, after a small correction, thru the election and most likely to January of 2013. Not sure how it gets extended beyond that but I believe it could go to April/May.

      A/D line, industrials etc.. all are diverging now, but that can take a long time before the markets react. Lets see what happens.

  • John Jay September 25, 2012, 5:59 am

    After I heard Max Kaiser rant once about how Apple’s huge stash of cash was illegal as hell under securities law, I proceeded to write my Congress lady about it, citing chapter and verse of the law that states any corporation is only to keep enough cash on hand to meet immediate business expenses. Any cash beyond that is to be distributed as dividends I believe. That was about a year ago, I fully expect to be hearing back from my Congress lady any day now.
    Any day now.
    Any day.

  • C.C. September 24, 2012, 11:21 pm

    The smartphone arena is tight. The technology, quality and usability are all there now, save for but a few nitpicks in either camp about competing devices.

    The iPhone 5 will placate the fickle for the next – what, 90 days – about the same amount of time it takes for the average dating relationship to do it’s rocket ship arc and plummet back to earth in a heap before it’s on to the next ‘big thing’. And what after that?

    To stay on top – or continue on to (I think somebody said $1600 by 2014 or something), what will Apple need to ‘revolutionize’ the world with next…? The gap is rapidly closing in quality and functionality between the major players in this market. Anybody who’s looking out past the next 6 months has that on their radar, big & bright.

  • sycee September 24, 2012, 11:16 pm

    There are plenty of reasons that people will continue to pay the markup for Apple devices that have nothing to do with them being ignorant children. For example, you don’t have to relearn iOS every major release and their app store has a good selection of software that goes through a somewhat rigorous QA process by Apple before being posted. This is in stark contrast to Android’s app store which takes a much lazier, demand-only approach to software QA. Apple devices have also had generally high build quality ever since the release of the original iPhone, which is one of the things that set it apart from what was available at the time. I used to have an HTC Windows Phone device that I could force to hard reset by pressing the case between my thumbs.

  • martin schnell September 24, 2012, 7:21 pm

    Saw an interview with a hedge fund manager a while back where he noted based on some meetings he held in China that the buyers of iPhones in China were mostly men, for their girlfriends and mistresses. None of the men had one for themselves since the apple software was horrible for Chinese characters. The women of course had multiple phones, with the iPhone acting solely as a piece of jewelry (not as an actual phone to be used, just viewed).

    I think the potential for the iPhone in China is vastly overrated, as of course is the potential for China to keep increasing GDP solely by building more infrastructure and more capacity (of course a lot of it is so crappy they will have to rebuild it – lots of reports of bridges falling down lately from poor construction – but that can not be a winning idea for very long, can it?). China is about to suffer a major reversal.

  • Robert September 24, 2012, 7:10 pm

    Whenever a chart goes parabolic, the rise is fueled by those who recognize the short of the decade, just a little too soon.

    AAPL will be the short of the decade, just as soon as it makes a couple million mailmen and kindergarten teachers into paper millionaires, and their stories begin gracing the pages of Facebook, and Time and People magazines…

    Until then, use your time for more useful things like picking the lint out of your belly-button than betting against AAPL…

  • Chris T. September 24, 2012, 5:58 pm

    “….the new iPhone is a must-have – and not just for a few thousand women who can afford such things, but for a cult of millions…”

    Makes one think: what will it take for this country’s people, esp. the young, to realize how bad things (really) are?

    Apparently rising necessity prices aren’t it, nor rising college prices / debt, nor the rising number of unemployed / underemployed (waiters,…) grads, and so on.
    Same goes for totally unecessary birthday parties for 1-year olds (like they will remember even 12 months later) that cost 1000s, or 35+k grand weddings, so that even Jane Doe can make-believe she’s Diana/Kate, and so on.

    Contrast that to the general mind-set in about 1979-1980, or during the mid 1930’s.
    At least for the former, we were objectively doing much better than today.
    One major diff: interest rates/policy, perhaps 20+% mortages are just too obvious too ignore.

    But at least, this still happy-think will put Romney back into business / charity arena and away from DC!
    (looking good: Obama is widening his lead in the 8 or so battleground states where the election will be decided. It just so happens that in those states, the economy is ahead of the nat. average. guess the White House did a find job of steering federal largesse that way…)

  • Mega-Bear September 24, 2012, 5:35 pm

    ra, back to 2 weeks ago, I rarely disagreed with any of your mega-bear financial opinions.

    however, ever since you became a full-out, raging mega-bull last week, with your call for a “1400-point dow rally”, and adding today, your bullisly assured comments on (that highly-OVERbought, way-OVER-priced market-leading BALLOON called) Apple, continuing it’s crazed rise to way above above $800 (with comments like “with iPhone4 arriving in China in March, the next $100 rally is baked-in-the-cake”), IMO, you are placing yourself way out there, in terms of potential risk, of a MAJOR reversal.

    so you consider that the “sucking” of apple maps is irrelevant? I highly disagree. and not just because accuracy of maps ARE important, but because FINALLY the ‘chink in the armor’ is there psychologically, about the supposed ‘greatest’ product from the supposed ‘greatest’ company in the world. so DOUBT has now finally arrived to apple; and from now on, potential buyers will wonder what new ‘bug’, will any new apple product has.

    until shortly, the public will realize, that without it’s perfectionist-creator steve jobs, this company is now: just mediocre, and way-overpriced.

    (btw, are you aware that there is a 1-vote poll going on right now, on the front page of ‘yahoo finance’ online, re the new apple phone? and so far, approx. 120,000 ‘yahoo finance’ readers have voted? (and btw, readers of yahoo finance are probably wealthier than the average kid in the street). and do you know what the results are, so far?)

    “POLL.”
    “Is the new iPhone different enough to make you want to buy one?”

    “Yes– (18819) 16%”

    “No– (80260) 68%”

    “I’m going to wait– (19415) 16%”

    yes, that’s right, out of roughly 120,000 ‘yahoo finance’ readers, a whopping 84% total, say they would NOT buy the new iPhone.

    xxxxxx

    additionally, rick, you also write today, in your free daily commentary:

    “Gold was getting mildly pounded Sunday night — manifestly FOR NO GOOD REASON, since, as WE ALL KNOW, every central bank in the world is now synchronously complicit in an open-ended monetary blowout.” (CAPS MINE)

    “for no good reason”, you say?

    how about screaming short-term WAY-overbought technicals, like MACD, RSI, bollinger bands, etc.?

    and since when what “we ALL know”, has made money for ANYbody, in ANY markets?
    since what “we ALL know”, is almost always, a CONTRARY market indicator?

    xxxxxx

    but maybe, “this time it’s different…”– NOT!

    because “…the trumpets sound from on high”
    might be heard SOONER than you currently think.

    &&&&&&

    Your “WAY overbought technicals” have been rubbish since 2009, dude, and that’s why I rely entirely on my own. Ask around the neighborhood if you’re skeptical that they work. RA

    • Mega-Bear September 25, 2012, 6:47 pm

      you made me laugh, dude.

      Hey, we can all use a laugh these days.

      I know you know your chart-tech shhtt, and are a damn good daytrader, if not I would not waste my time posting here, in order to get your feedback and some of the others herein. because, just from my general observation, about 3/4 of your short-term (many markets) calls are correct, and IMO, that is better than most.

      yet, it is interesting to read, that you say you “rely ENTIRELY on my own” pivot-system.

      in other words, if I understood you correctly, you TOTALLY disregard ALL other chart-tech systems other than your own, don’t even bother looking at them, and that includes not even caring about EXTREME sentiment figures, whether over-bullish or over-bearish. Plus of course, you also now do not give a whit about either, any fundamentals whatsoever, whether on debt-implosions, bank-runs, etc.

      Yes, I totally disregard not only all other systems, but all other gurus. I encourage those who take my Hidden Pivot Course to do likewise.

      interesting.

      Because, IF I have understood you correctly in your comment above, then you are the only tech ‘lone ranger’ I know, out of hundreds of market-technicians who’s work I have ever read, or studied their charts, in over 30 years time.

      Working in the trading pits of just one securities exchange, I knew at least a dozen lone rangers myself, each easily as good as anyone that anyone has ever “heard of”. I’ve kept in touch with a few of them: Tom Tankka, Mark Klizas, Craig Resnick.

      (And, btw, I did not say above, that your 1400-point dow rally was not possible; I just opined that it is HIGHLY unlikely, based on many EXTREME tech, sentiment, and fundamental measures, that are occuring right now. personally, I think that IF the prior DJI 2007 top of 14,200 is broken, then, AND ONLY THEN, the ‘sky could be the limit’ for the DJI. however, I obviously do not think there is much chance of that happening, I give it 20% maximum, based on all I am seeing right now).

      I don’t believe a 1400-point rally “should” happen either, considering how close to the edge the global economy is — and the fact that it is running on fumes and brazen, ridiculous lies. However, based — simply — on the way the DJIA blew past a clear-as-day ‘midpoint Hidden Pivot’ at 13502, I’m obliged to believe there’s an odds-on chance that 14969 will be reached. This is even harder for me to believe now that Fedex and Caterpillar have both predicted that 2013 will be dreadful. But still…

      as only 1 example, are you aware that the ‘Market Vane’s Bullish Consensus Indicator’ (founded in 1964) is currently at an EXTREME sentiment figure of 69% bulls, which also exactly matches the 2007 december top? (as a comparison, the 2009 low had only 31% bulls).

      (btw, what happened to your soon-to-be $40 dolar oil call, and your under-$40 dolar goldman-sachs call, and your $1.08 minimum euro call? and what also happened to your prior megabear well-justified fear, of an overnight markets total implosion? gone? since you now think the central bankers have it all under control, thus all now is up and up, except for the mega monthly-printed, q.e. electronic dolars?)

      Nice to see someone is paying attention, although I never said crude would fall below $40 “soon.” But $40 eventually? Although there is no technical evidence to support this, it seems plausible with a global Depression bearing down on us. However, the threat of war and the curtailment of supply that would result will continue to be a wild card that no one can handicap. As for Goldman, I was wrong wrong wrong to give up on my under-$40 call merely because the stock rallied to $193 after inititally having gone no lower than $47. (I gather that you did not receive the e-mail I sent out BEFORE the bank stocks went into their hellish dive. My price targets for all of them at that time — including BELOW $0 for Lehman and Bear Stearns — were so horrific that I could scarcely believe them.) Anyway, before the Second Great Depression has run its course, I expect Goldman to trade for under $40 — WAY under. As for the euro going to 1.08, you’ll just have to be patient. In the meantime, I welcome your vigilant attention to these numbers, even if it sometimes makes them appear to have been mere blather.

      personally, I am starting to think that the only thing that will implode this now out-of-control fiat-steroided market, is a nixon-exposed type event, of a damning recording, in which the bernanke is recorded discussing (and laughing) with his bankster buddies, on how they are shafting the u.s.a. people and stealing their trillions, by placing their taxpayer cash straight into their bank coffers, and the banks giving back to the u.s.a. people, all their bad underwater ‘toxic’ mortgage-vehicles.

      so IMO, what it will now take is an innocent ‘toto,’ or an insider crafty ‘deepthroat,’
      to bring ‘the mother of all ponzi schemes’, completely down.
      of course, there is no ‘witness protection’ that will save that poor ‘fed whistleblower’ sucker.

      All the lies, corruption and deceptions are known, but this has not even slowed down a bull market driven at last by a globally synchronous money blowout. As far as what will eventually cause the system to collapse, I doubt that any of us will have guessed right. But I feel pretty certain we’ll all awaken one morning to learn that the banks have closed. Officially, it will be for “a few days”; then it will be “temporarily”; and then,”indefinitely”. I’ve told my subscribers to keep a shoebox full of $5s, $10s and $20s just in case, since filling station attendants and grocery store clerks are not going to know from gold or silver, at least not right away.

      anyway, dude, since you gave me a good laugh with your comment above, I am going to say, I think the top for gold is already in. I think from this $1800 area, it’s straight down, and sooner than later. so I am looking for the dive in october 2012. ergo, I do not expect obumba to be re-elected, and I also think bernanke will be ‘asked’ to resign, effective january 2013. then ben better move fast to a foreign private secret island, and far away from u.s.a., because there are going to be MANY americans, hunting him down, to place his head on a spike, for totally destroying the future of their children and their nation.

      It’s lose/lose in any case, right?

    • sycee September 25, 2012, 9:09 pm

      I always choke a little bit when someone cites RSI as a technical indicator for anything. Talk about the perfect hindsight is 20/20 indicator.

  • gary leibowitz September 24, 2012, 3:56 pm

    Apple is once agains trying to go it alone. They started the proprietary PC route and destroyd any chance of dominance.

    Now their arrogant ways will eventually get them in trouble. They have already seperated their relationship with Google. For now however they have firm control on the immediate future with the huge Asian expansion going on.

    Rick seems to love to hate this stock. Like the general market he bets with it grudgingly. Given time all will fall in flames, some setting off larger sparks than others.
    In fact I use AAPL as a forward looking guide to the health of the general market. Its expected surge should coincide with the general markets move as well.

    I also think Gold will fall with stocks initially. So far they both look like a winner for now.

    Pretty sure the next low in equities will be at the end of 2014, with a 50 percent haricut off its highs. Even then I don’t believe we will have a bottom feeding frenzy. There should be more violent moves up and down with shorter frequency even after my assumed 2014 low.

    • gary leibowitz September 25, 2012, 1:11 am

      “It seems pretty stupid to buy a BMW when you can just as easily ride around in a Smart Car”.

  • mario cavolo September 24, 2012, 7:38 am

    …” there is the deal with China Telecom that will be worth perhaps $6 billion of instant new revenues.”

    Its a screwy chaotic new global world Rick, with the rise of Asia led by China; disaster for some, heaven for others as the unprecedented, scary, awe-inducing global-sized economic shifts continue to roll on. Meanwhile, it is a gigantic $6 billion “tidbit” of info like yours above which are on the list of why I keep explaining to others that the last place on earth they need to be worried will lead a decline is China, warts and all… In fact, just the opposite is now clearly my position. In the truest, slyest spirit of disinformation, I believe the biggest statistical lie out of China is not how much trouble they may be in, not how poorly they are doing, but that they are doing much, much better than they want the outsiders to realize. After all, it is in their quietly self-serving mindset, the “Middle Kingdom” between heaven and earth.

    Cheers, Mario


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