The Apple Is Rotting

During the pandemic, investors poured into the high-growth tech stocks since money was essentially free. Companies like Apple (AAPL) got to take loans at essentially 0% and that drove their trading multiples higher. People were willing to pay a premium for the growth potential. Remember when this is what Apple looked like?

trading

Now that interest rates are higher and liquidity is drying up, the market is realizing that paying the premium P/E ratios, even on a company like Apple doesn’t make sense.

What if I didn’t name the company already and asked you how much you would invest in a company with shrinking margins, a heightened concern with geopolitical issues between China and Taiwan that could shut down a large customer base and suppliers, and it’s a company that hasn’t released anything truly new in years and only projecting single-digit growth in this year?

That’s why Apple has been on a losing streak. They are a cash-generating company by selling essentially subscriptions to its billion customers. I understand that iPhones aren’t subscriptions, but the loyal fan base buys the phones each year, even if they are essentially the same as the previous model. One day, whether it be a new AR or VR or some other product, Apple will utilize its customer base of over a billion people and then they will enjoy a new growth period.

They are trading below the mess the market had in June and they are trading lower than the market low made in October. That’s a big deal!

trading

Everyone says the market trades in the direction of Apple, but this is where I think we are entering a change wave. I don’t think the same big-name tech stocks that dominated the previous 3 or 4 years will be the ones to lead us out of the bear market.

The problem is that I don’t see a market leader, or leaders, who are ready to be part of the changing of the guard. That’s why I think we’re muddling along right now. Apple and those like it can use their cash reserves to buy back shares and protect their stock price and wait this out.

How rotten can Apple become? How could you trade it from here?

Here’s a weekly chart with a Fibonacci Retracement from the March 2020 low and January 2022 high. That says our next support level should be around $118. Below that $102.73. Unless Apple completely falls apart, I don’t see it going below $102.73.

trading

Here’s why I think $115 – $118 is where I could see a pivot.  Using the Fibonacci Extensions from the high to the next low and then the next high (see the yellow lines below), we get a price level of $123.20.  

trading

That means we now have two different tools telling us a potential pivot level is $118 and $123. So, I think there is a key level there. A break below that level will send it to the $100s in my opinion.

They have earnings on 1/26/23. Let’s look at the options data for the 1/27/23 expiration to see where the market might think Apple will go.

trading

The most open interest, even going through earnings, is at $120. Could that be the low? After that we’re looking at $115, then $110, and $100.

You could sell a cash-secured put at $120, but if the stock continues lower, the put will be challenged until time decays.

You could sell an Iron Condor, but again, selling puts right now could get challenged over the next few weeks.

You could create a butterfly trade for a low cost. It’s a low-risk, high-reward trade, but that also means the probability of success is usually lower.

Buy to open 1x 27 JAN 125 put
Sell to open 2x 27 JAN 120 put
Buy to open 1x 27 JAN 115 put
Net debit (max loss): $68
Max Profit (if AAPL closes at $120 on expiration day): $431.

Here’s the risk graph.

trading

I’d exit at 100-200% of the initial debit. At $68 to enter the trade, I don’t have a stop-loss idea. Maybe exit the trade if Apple crosses above $140.

If you want to reduce the debit, wait for an up day before putting on this trade. Apple lost nearly 4% in a day. It might have an up day or two in the near future.

If you have any questions, comments, or anything we can help with, reach us at any time.
Email: [email protected]
Phone: (866) 257-3008

Jeff Wood

Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab

Is The Stock Market Cycle Pointing To A New Bull Market Already?

Is The Stock Market Cycle Pointing To A New Bull Market Already?

memberswis
On February 6, 2023

February 7th, 2023Is The Stock Market Cycle Pointing To A New Bull Market Already?Are we in another bear market rally or the start of something new? That’s what everyone wants to know, especially as we

Job Creation Shocks The Market

Job Creation Shocks The Market

jeffwood
On February 5, 2023

February 6th, 2023Job Creation Shocks The MarketIf we’re heading into a recession, how were we met with better-than-expected job growth numbers last week? Unemployment dropped, despite the headlines of tech companies planning to lay off

Job Cuts And Stock Buybacks Keys To Success In 2023

Job Cuts And Stock Buybacks Keys To Success In 2023

memberswis
On February 2, 2023

February 3rd, 2023Job Cuts And Stock Buybacks Keys To Success In 2023 The thing I’ve learned from this earnings season is that a company can have consecutive quarterly drops in revenue and provide a lower

Fed Raises Rates But Bulls Are Still In Control

Fed Raises Rates But Bulls Are Still In Control

memberswis
On February 1, 2023

February 2nd, 2023Fed Raises Rates But Bulls Are Still In ControlOk, bulls. You win.  I will start lifting my bearish stance on the market.  Despite the final 10-minute market sell-off and a Dow that finished

What Past Fed Announcements Tell Us The Market Will Do Today

What Past Fed Announcements Tell Us The Market Will Do Today

jeffwood
On January 31, 2023

February 1st, 2023What Past Fed Announcements Tell Us The Market Will Do TodayWatch out - this article is going to have some math.Here we are once again on Fed Announcement day. Most of the folks

The Hidden Profits Of 2023

The Hidden Profits Of 2023

jeffwood
On January 30, 2023

January 31st, 2022The Hidden Profits Of 2023There is still one more trading day left in January, but if the adage “as the S&P 500 goes in January, so goes the year” holds true, the markets

The Fed Goes Up Against Earnings This Week

The Fed Goes Up Against Earnings This Week

jeffwood
On January 29, 2023

January 30th, 2022 The Fed Goes Up Against Earnings This Week We are in peak earnings season with some heavy hitters like Pfizer (PFE), Snap (SNAP), Meta Platforms (META), Amazon (AMZN), Alphabet (GOOGL), and Apple

Smoother Sailing in 2023

Smoother Sailing in 2023

user
On January 18, 2023

January 17th, 2022Smoother Sailing in 2023 Nothing has changed since the end of 2022, yet traders have already decided that this year won’t be as bad as the last. Bulls have been piling into stocks

The Rise Of Bing Over Google – That’s No Joke

The Rise Of Bing Over Google – That’s No Joke

jeffwood
On January 12, 2023

January 12, 2023 The Rise Of Bing Over Google - That’s No Joke Before we talk about two tech giants getting ready to battle it out once again, let’s look at the overall market. The

Why I Ignore Most Of The News

Why I Ignore Most Of The News

jeffwood
On January 8, 2023

January 9th, 2022 Why I Ignore Most Of The News It’s easy to get caught up in the financial headlines. I’ve certainly done it. Last week shows why I ignore most day-to-day stories. I know

PREV NEXT
Receive the latest news

Subscribe To Our Daily Newsletter

Get notified about new articles, special events, training, and much more

Like What You See?

Leave your info below to get more options and trading ideas to your inbox

Yes, send me news to my inbox.