Apple is a salad of technicals and fundamentals

From friend-of-the-blog victor (“tradervic”) castroll:

Traders and shareholders look at stocks and companies through different lenses. Traders keep a close eye on technical analysis with a dash of continuing fundamentals. Long-term investors and shareholders generally do the opposite; focusing their efforts on deciphering growth rates of divisions and, in Apple’s case, important metrics like iPhone ASP and service revenue growth.

As a professional equity and option trader of Apple for a decade and a half, I’m not here to say one is better than the other. In fact, I say take a smidge of both, toss them into a salad and see if the salad is any good.

So, let’s make a salad.

For my money, Apple’s technical analysis looks relatively straightforward and even provides a rare confirmation of a so-called south star. We have three facts that we can intertwine to make a quite valid assumption.

  • Apple’s all-time high is, for all intents and purposes, $233.
  • Generally, stocks revisit gaps. Apple has had two recent gaps that *may* need to be revisited, both accomplished during earnings releases prior to the last “miss” on 11/1/18.
  • Stocks like Apple, Facebook, Amazon, Netflix and Google typically move in measured moves.

In this latest downdraft, Apple has already revisited the gap of two quarters ago around $190. The next gap occurs at $167 and if one is a “gap test” theorist, $167 becomes the south star.

Both the north star, $233 and the south star, $167 are a measured move of $33 from each other, 15% on the mid-line of a $200 share price. 15% is a very reasonable measured move figure, so nothing is terribly out of line in this theory.

Great, our greens and proteins look good. Now let’s take a look a fundamentals and make the dressing for our well-prepared technical salad.

This is where our salad, in my opinion, falls apart. The fiscal Q4 earnings call famously contained the “we’re no longer reporting iPhone unit numbers” surprise. That’s the exogenous shock that turned soft quarterly guidance into a red flag that powered a downdraft.

To this add the usual seasonal dollop of FUD around factory and product line closures and cutbacks. Tim Cook told us years ago to disregard this manufacturing “noise,” but this time might be different. ‘Cause this time, Apple doesn’t give us the final score at the end of the quarter to see if rumors are right. Apple watchers now need to become detectives and reverse engineer total iPhone volume, the ever growing product line and the result on ASP, quite a tough task to be sure.

Give a person a salad, feed him for a day. Teach a person how to make a salad, feed them for a lifetime.

The salad i’ll be eating costs about $170 bucks. I’ll probably eat a third of my salad there. I’ll have a little more at $167—maybe another third or even half my salad.  If i see a salad that costs about $160, I’ll back up my salad truck. But if this apple salad goes under $157ish, I’ll need to get out of the Apple salad business and wait ’till I can find a salad for $120 – $140.

Now, I know., some of you people like to have the option of selling salads naked. I see nothing wrong with that. I’d sell someone the option to enjoy a $130 salad by February 2019 and giggle all the way to the bank.

My take: Fundamentals and technicals. Remind me: Which is the dressing?

Editors note: The author has asked me to add that his draft was submitted before Friday’s pre-market trading began.

62 Comments

  1. Jonny Tilney said:

    That analysis left me unconvinced (again). It really seems to be all about looking backwards and not forwards…

    2
    November 23, 2018
    • victor castroll said:

      um, the way i read it, (and wrote it) i clearly say that looking forward, it looks like the stock is going to 170, 167 and possibly much lower if levels are breached. not quite sure what isn’t forward looking about that.

      0
      November 23, 2018
      • Jonathan Mackenzie said:

        Have you ever heard the joke about how a technical trader buys a sailboat? He takes it out on the water. If it floats, he buys it. If it sinks, he says it wasn’t really a sailboat after all.

        1
        November 23, 2018
  2. Michael Thompson said:

    One theory of mine has clearly fallen by the wayside is the concept that Apple’s $20+ billion per quarter buyback would insulate it from these sharp downdrafts.

    If in fact Apple is in the process of buying back $20 billion or more in stock this quarter, the selling must be massive in order to make the buyback look impotent. Where would Apple’s stock price be if the buyback wasn’t in place and massive?

    Apple does not have to evenly distribute the usage of monies used to buyback stock. Apple spent billions buying back stock at a price over 220 last quarter, why wouldn’t the floodgates of cash be used to spend $40 or more billion during this quarter to buyback stock at a 25% discount?

    When Luca Maestri announced that Apple intended to move towards a cash neutral position, both he and Tim mentioned that the buyback would be used strategically.

    Hello, November 2018 would probably be a good strategic use of the buyback.

    When will Tim publicly defend his company and yes that is definitely one of the roles that a good CEO can play when his company’s valuation has dropped more than 25% in less than two months. He defended Apple during the August, 2015 swoon.

    0
    November 23, 2018
    • victor castroll said:

      i’m just positing here but what if Buffet doesn’t like $aapl salad here? he’d smoke ’s buyback to smithereens. he’s up 100% plus here with dividends. he gripped it and ripped it. he has no requirement to divulge till 1/1/19 or whatever. i’m not saying he is selling. my question is,
      1. what if he is
      2. what happens to  when cnbc reports the oracle cut some ?

      0
      November 23, 2018
      • Paul Brindze said:

        One of the few things we know about Buffet is that he is neither a short term trader nor a momentum follower.

        Never say never, but an EXTREMELY unlikely seller here,

        3
        November 23, 2018
  3. Michael Thompson said:

    At Apple’s current disgusting stock price (174), Apple’s market valuation is about $826 billion.

    If Apple buys back $25 billion during the quarter, then Apple would have retired about 3% of the outstanding shares in one quarter. However the stock has declined about 25% during this quarter. The question isn’t who is selling, the question must be who isn’t selling.

    2
    November 23, 2018
    • I’m not (selling)! Bought about as much as I could today at $174. I truly believe this is what Tim and Luca have been waiting for. I’ve reigned in my demand of $60 billion in repurchases, to a more modest $40 billion for the quarter.

      I started this beatdown like I have the last few others, with a sarcastic laugh. Unfortunately, as usual, I’m now Worried what everyone selling knows that I don’t. I see such a long runway for Apple, going forward.

      I’ll be looking for one of 3 things, and perhaps all of them, for a little reassurance. First, Apple dominated Black Friday/Cyber Monday. Second, Warren bought more. Third, Tim speaks.

      I’m very certain this will be like the other times and I’ll eventually be elated that I added to my position, but this sure has been a sharp downturn. It doesn’t seem like the rebound will be anytime soon. I’m just hoping for a floor on the stock and I’m thinking it’s $170.

      GLTA Long AAPL

      Dan

      2
      November 23, 2018
    • victor castroll said:

      your last line was a money shot. nice one

      0
      November 23, 2018
  4. Michael Thompson said:

    One other thing and I’m not going to name names, but one well known poster and blogger on this site was 100% wrong regarding his theory about Apple’s capital expenditures and its close tie to revenue growth. Based on that info I thought that we had $100 billion revenue for the 1st fiscal quarter in the bag.

    Unfortunately that didn’t happen, but the credibility of that poster has been harmed likely forever.

    0
    November 23, 2018
    • victor castroll said:

      aren’t we here to name names? i was requested to name myself and “own” my apple salad

      0
      November 23, 2018
    • David Drinkwater said:

      1st quarter of what year? Q1 2019 hasn’t happened yet. And what Cap Ex or Op Ex are you counting against?

      0
      November 23, 2018
      • Michael Thompson said:

        I’ve requested that this comment come down, to avoid conflict.

        0
        November 23, 2018
  5. Matt Tanase said:

    “I’ll back the truck up at $160 but sell it all if it drops 2% and wait for it to drop another 15-25%” – If anyone needed confirmation that technical analysis is virtually worthless in the age of algorithmic trading, there it is.

    The Apple is doomed headlines this quarter have been relentless, almost daily for several weeks. That angst has been amplified by Apple’s decision to cut unit sale information. It’s unlikely this slide stops until the news cycle plays out in December. The best data we can get as retail investors is probably Mixpanel year over year, which doesn’t look terrible to me. Ultimately we’re setting ourselves up for a HUGE rally if Apple’s guidance holds/beats or another gut punch if this year’s launch really was a misstep.

    7
    November 23, 2018
  6. victor castroll said:

    you guys are burying the lead. you’re overlooking the XR price cut in japan. can anyone remember the last time  did a price cut in two weeks in a pretty major market? if X-RAY isn’t selling in wealthy japan, you think the chinese are rushing to buy one. here’s what i think. apple put the XR into the channel, saw the initial response of the world sales and had an “oh shit”. imho, the XR was designed to mask iPhone unit volume. show fake growth. when you think about it, it’s a rather useless product extension. but that’s besides the point. the second the UFO got wind, literally, that XR was a fart, they had to scratch the iPhone unit volume disclosure. the plan backfired. where this plays out, who knows. but god forbid there’s a price cut in china. and i think there HAS to be

    0
    November 23, 2018
    • Matt Tanase said:

      There’s a possibility the XR is a miss. I don’t understand why, it struck me as an awesome option for someone who didn’t care about having the absolute latest and greatest. But who is to say the XR is a miss because buyers aren’t opting for the XS, XS Max or X at higher price points? Success or failure, I consider the XR an interesting experiment.

      Tradervic – Why would the XR be used to mask iPhone unit volume? In years past, instead of an XR people buying at lower price point would have simply opted for an older model.

      If you’re a long term investor, it should come as no surprise the unit growth is stagnant. The iPhone business consists of a 750m base that buys a new phone every 3-4 years. It’s a free cash flow cow that will be used to retire shares. The reason one should own Apple for the long term are Airpods, Watches and Pencils. All are on the absolute bleeding edge of micro computing that fades into the background and creeps into healthcare.

      2
      November 23, 2018
      • victor castroll said:

        and i haven’t even scratched the surface of not having a killer app reason to upgrade. an iPhone 8 is plenty worthy for fb and insta. (and snap). check out the “kids” right now. they’re still floating 7’s and 8’s. and at 1k+ prices, they will continue to considering there really isn’t a reason to upgrade. memoji?…

        0
        November 23, 2018
        • Matt Tanase said:

          The days of killer upgrades are gone but this is not a surprise to anyone. Most upgrades come from ~30% of existing owners replacing a 2-4 year old phone in poor physical shape.

          There are far scarier reasons that could cause a 25% drop from here: macro headwinds, tariffs/trade wars, China retaliating against the US for blacklisting Huawei, the market repricing everything given higher interest rates.

          1
          November 23, 2018
    • Paul Brindze said:

      I just reread the WSJ report. WE are still at the rumor possibly FUD level on that one.

      Since Japan carrier sales are complex mixes to lock in subscriptions, the cut next, assuming that part is correct, could be as much to bolster weak carrier subscriptions as XR sales. Nonetheless it fits well within the current press narrative, so will be repeated.

      I notice no press on the fact that no “X” model (XR nor X nor XS nor XSMAX) appears included in Apple’s Black Friday/Cyber Monday sale. Not the actions of a company looking to dumbo inventory.

      1
      November 23, 2018
  7. Fred Stein said:

    Happy Thanksgiving and stay long.

    It’s fine to try to time the market, but really that gambling. Technicians and rumor mongers do not help us.

    Who helps us? Apple employees. The strongest reasons for Apple’s buybacks is employee recruitment and retention.. Without talent there’s no long-term value to AAPL. Apple will buyback about $300,000,000,000 worth of share over the next five years. (including what they buy this quarter.)

    3
    November 23, 2018
  8. victor castroll said:

    and right on cue, az says $167 is a south star.

    happy holiday folks…

    time will tell, as it always does.

    0
    November 23, 2018
  9. victor castroll said:

    more importantly, why were we down 2.5% today? i’d venture out of the past 8 years, aapl’s been up 6 and down 2. another outlier?

    0
    November 23, 2018
  10. George Knott said:

    Quite frankly I am more worried about the moron in the White House expanding the tariffs. I just retired, also have 100% of my portfolio in Aapl. Started buying Aapl back in 2009 and yes, we have been here before and thankfully I didn’t panic and hung on, but I was also employed at the time.

    This time not only do we have the Aapl unknown, but we also have the clueless federal reserve raising interest rates and a president IMHO is bankrupting the country. The possibility of aapl products becoming part of the war with China, is another HUGE unknown.

    Lastly, I do think Tim Cook should come out with some statement to assure both the employees and shareholders, but like Trump he can be a bit arrogant and will shrug it off since he has more than enough $$$ to retire on.

    In the meantime……Rome continues to burn….and I try to reassure myself not to panic!!

    0
    November 25, 2018

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