Tempting Tuesday – AAPL Bites Into Nasdaq’s Gains

Head and shoulders (knees and toes).

[Chart above by Dave Fry.]

That’s the chart pattern that is now shaping up (if you are into such things) and, in fact, it will be marked by a small bouncy “rally” that ultimately fails before our strong bounce lines and ultimately cracks below the bottom of the old channel.

Like yesterday, in our Member Chat Room, I said I thought the best risk/reward play for AAPL was playing them for an earnings miss by picking up the next week $500 puts for $2, which could be $10 if AAPL disappoints.  Well, disappoint they did and we’ll see if we hit our 400% target gains on that one today.  

Long-term, we’re still long on AAPL and we will be pressing out long bets on this pullback (see my notes on AAPL earnings and trade ideas in this morning’s Member Chat, below) but we’re not in a hurry until we see the indices shape up:

AAPL still languishing around $505 but Futures bouncing back half a point, except the Nas, which is down about half a point.  Don’t be fooled by the Futures though, They are bouncing back to where they were at 1:30 pm and another failure there would not be good at all.  

Amazingly, AAPL has pretty much announced they’ll be moving into the mobile payment space with their 400M ITunes users (Visa has 50M users) and no one seems to be doing the math on that!   Of course, it’s hard to get traction when CNBC runs headlines like this:

This is how bad it could get for Apple stock

In the article, they are talking about a 40% drop ($350) due to these “horrific” earnings, especially guidance, where AAPL “only” forecasts $43Bn in sales with the usual 37% margins.  This Q they made $13Bn per $550 share (now $505).  At $505, that’s about $14.50 per share or a current p/e of 8.7 (assuming 3 more “terrible” quarters like that one) NOT INCLUDING, of course, their $160Bn pile of cash which at $420Bn, is 40% of their market cap.  

So AAPL $505 is RIDICULOUS.  It’s a BUYBUYBUY and, if they drop to $400, then it’s a BUYBUYBUY.  You will hear ever single moron who ever had an opinion lining up to dis AAPL today but keep in mind we EXPECTED this reaction – we took a very light bullish entry in our LTP, despite the fact that AAPL is my stock of the year because we were only worried it might go up and we’d miss our chance but mostly, we were waiting for this!  

We’ll have plenty of fun trade ideas in Member Chat and we’ll be cashing in our AAPL puts, which should be up nicely and, of course, we have the Fed tomorrow – so a very exciting couple of days ahead of us.