“Stay Hungry, Stay Foolish.” -Steve Jobs
Is the Apple monster stock run of the century over? Has the Fox Conn labor problems and the Samsung Galaxy 3 finished off the once mighty Apple? Without Steve Jobs is it just over, due to no innovation and a decline? Or is this just a correction inside of a bull market? No one can predict the future but we can lay down bets based on the odds. What are the odds of a company with the most innovative products in the world just being in a perpetual decline? A company with about $100 billion in cash and a 78% annual earnings growth rate and a 23% sales growth rate looks very healthy from an earnings expectations standpoint. Now people will say “It is too big to grow as one of the biggest companies in the world.” That is a common belief and that is why the P/E ratio is 15, it is already priced in to be too big to grow. The P/E ratio has continued to contract as the market cap grew. Monster stocks are world changers, the iPhone continues to be the benchmark for all phones, the iPad dominates the brand new tablet market that is crushing Hewlett Packard and DELL. Do you want music? iTunes.
Now with all that said (and I could go on and on for pages) this is one of the few stocks that I would love to buy off a key support level as opposed to buying momentum in a strong up trend. But where is the place to enter?
Plan #1 is if this plunge ends suddenly and we zoom back to the 50 day I will be a buyer on a close above the 50 day sma. (We want confirmation because if this is a down trend the 50 day will act as resistance and it could be rejected).
Plan#2 is where I think the sweet spot may be, the last two times that Apple fell below the 50 day there were buyers waiting around the 100 day ema we are currently only 12 points from that spot, we may get there tomorrow. Also if you draw a trend line form May from the previous two lows that trend line lines up closely to the 100 day ema level. (See 2nd chart below). Another indicator: the RSI is almost at the oversold level of 30 this also lined up with the 100 day ema this year as the best buy points. While Apple can stay over bought for longer periods of time it is very rare to stay over sold at all. I will be entering in the $630/$626 price area on a bounce into strength if I am given the opportunity. I will not buy a falling knife I will buy only if it bounces off the 100 day ema and rallies intra-day to $630 or if it loses the 100 day and retakes it intra-day. I will be attempting to risk no more on this trade than 1%-2% of total trading capital by using call options and the right position size for my account, if I am wrong I will stop out. This is a very high probability bet.