After a two hundred point run in Apple since it broke through the 50 day moving average we are now dealing with a brutal 2.5% draw down in the stock after hitting the psychological barrier of $600. Now the bears are out roaring again, “It is over”, “The move was parabolic.”, “No stocks go straight up in price.” “This is a great short.” These are likely the same traders who missed the money printing machine that Apple bulls have had this year. With the returns we have made this year being long apple, me and the apple bulls could go to cash and not trade any more this year and still have one of the best trading years of our lives. Why in the world would Apple be on anyone’s list of shorts? Even if they are right this time, most of the perpetual bears have already missed a great move. This was the year to be long the best stocks, not short the best stocks.
“Cardinal Rule #1 is to sell short only during what you believe is a developing bear market, not a bull market.” -William O’Neil
Apple has already proven itself as one of the top monster stocks of all time over a nine year period. Why do so many fear a $500 billion market cap when Apple will very soon have 1/5th of their market valuation in cash? How many companies in the world right now can sell all the product they can reasonably produce? What other companies has problems staying in stock in new products because their sales double quarter over quarter? Is this the top? $600? That is it, long term investors are all going to start selling now? Is this the peak of Apple? Will sales and earnings decline from here? The new iPad (3) is a let down? The iPhone 5 will not be innovative enough to increase sales for the company. The Apple TV will not gain market share? Will iTunes be replaced by something else? Will the iCloud not work out? What competition is rising up to take Apple market share in the foreseeable future?
It is one thing to think we are over extended and wait for a pull back to enter long, or simply stay out because you do not trade momentum or growth. It is another whole different situation to go short and think that you will be right. I can not think of a worst trading strategy than shorting Apple this year. I remember these same bearish tones back during the iPhone launch in 2007, it is hard to believe any company can grow like apple.
Who is the competitor
Apple has been in a $600/$576 price box for 3 days, how we close the day in relation to the high and low of this box after the next break out will be a huge indicator of which way we go from here. The 5 day ema is excellent short term support, the 20 day is intermediate support, and the 50 day will act as support if the market goes into a correction.
I will exit if Apple closes below the 5 day ema or it closes at the low of the day but I will re-enter at a bounce. I also limit my bets on Apple to only 1% of my total capital risked per trade by using call options and stop losses.
It is a better bet to ride a rocket heading to the moon than to bet it will not make it.