Apple Strikes Again

Let me tell you my thinking here.

More than 51 million iPhones sold is good enough for me, 3.2 million more than they moved a year ago, and they are more expensive devices. IPads leapt from 22.9 million to 26 million, including the five high end ones I bought.

The earnings announcement wasn?t that bad, with record quarterly YOY revenues of $57.6 billion reported. Earnings per share jumped a middling 5%, from $13.81 to $14.50, partially in response to the company?s own massive buy back program. ?Gross margins came in at 37.9%, which would be gigantic if Apple were in any other industry but technology.

The dividend was nailed at $3.05 per share, setting the yield today at 2.43% annualized, a mere 30 basis points below ten-year Treasury bonds.

However, I think that traders have become so conditioned to selling on the news that the stock wasn?t going to take a dump no matter what the company said. This is why I went into the release flat on Apple this time. It?s too early in the year to lick wounds. At today?s low of $502, we were down $73 from the recent high, or 12.7%.

If you look back at the collapse after the September, 2012 $706 peak, it took two months for the shares to fall $100. For us to lose money on the Apple February, 2014 $460-$490 bull call spread, it would have to fall twice as fast as back then, and it has to do it in only 17 trading days. Sounds like a good bet to me.

We are also getting huge valuation support down here, with an ex cash multiple of 9, versus a market multiple of 16. Investors are going to hold a gun to the head of their portfolio managers to get them to average up in this neighborhood.

You also have corporate raider, green mailer, and former Manhattan neighbor of mine (activist, to be polite) Carl Icahn twittering away about how cheap the stock is, and buying another $500 million worth of shares today to cash in on the plunge. You can see him coming in every time the stock takes a run at $507. Carl was not a factor in the last melt down.

My whole theory on why Apple has disappointed continuously for the past 18 months is that the company has just gotten too big. A different sort of physics seems to apply when companies exceed $500 billion in market capitalization. The more money the company makes, the cheaper it gets. This is causing even the most seasoned value players to adopt a surly attitude, throw their handsets at their monitors, and tear out there hair, if they have any left.

Steve Jobs must be laughing from the grave.

For your edification, I have included a proprietary chart from my colleague, Mad Day Trader Jim Parker, showing huge technical support at the $470-$480 level. It is days like this that Jim is worth hit weight in gold. Too bad he isn?t heavier.

S.APL 1-28-143

apple-1