(AAPL) Archives - Page 99 of 113 - Mad Hedge Fund Trader

Google's New Chinese Play

As a bolt from the blue, Google search is headed back to China.

The project coined Dragonfly commenced in early 2017 as Google sought a way back into the lucrative Chinese market to sell its products.

The retracement to China then later sped up after Google CEO Sundar Pichai secretly met with a top Chinese official in December 2017.

The censored Google search application could be launched in the next six months to a year upon approval from the communist party.

Why China?

There are three times more smartphones in China than in the U.S. This market represents celestial scale unfounded in any other country.

The Chinese Internet population has roughly 772 million people with Internet penetration levels at about 55%.

The U.S. has maxed out its penetration level at 89% and there is little room to snatch up a new group of mass users. This is not the case in China, which has ample amounts of room to run.

In addition, Google hopes to roll out a news aggregation app mirrored on Chinese newsfeed app Jinri Toutiao that implements personalized artificial intelligence to cater toward each unique user's needs.

As of December 2017, users spent an average of 73 minutes per day on this app.

Jinri Toutiao has 120 million daily active users and has been given a valuation of around $35 billion.

The unbridled potential for American large cap tech companies in China is unrivaled.

But navigating around China's murky business environment under the comprehensive controls of the Great Firewall has proved cumbersome highlighting the executional prowess of Apple's (AAPL) iPhone business in China.

Why did Google leave in the first place?

The issue of censorship was the catalyst leading Google search to the exits.

Google was stunned by the exploits of the Chinese communist government, which maneuvered around Google's system targeting human rights activists among other things.

Operating abroad, companies do not always have complete control over the systems they build and the business processes that revolve around it.

Beijing continued to press Google to filter its search results in 2010, and anything but compliance spelled doom for Google's future in China.

Restricting speech is commonplace for many undeveloped countries with brutal regimes.

The U.S. has one of the most lenient free press laws in the world underlying the backbreaking hassle of operating in a country that actively and aggressively suppresses free speech deemed negative to the people in powerful positions.

After Google started rerouting mainland Chinese Google search to its filter-less Hong Kong servers, Google search was unceremoniously shut down within months.

A comeback is in the works at a time when China and America are at each other's throats in a tit-for-tat trade war, complicating the move to reinsert itself back in the Middle Kingdom.

Let's make no bones about it, this is a high-risk, high-reward strategy for Alphabet, which seeks to add yet another growth driver to its profit-making machine.

Out of the FANG group, only Apple has emerged to unlock the Chinese market with outstanding success.

All other American tech competition was rooted out. Only chip names such as Micron (MU) and Intel (INTC) latched onto the Chinese market largely because of the Chinese demand for chips.

This unfortunate development opened the path for the BATs to dominate in China, which is comprised of Baidu (BIDU), Alibaba (BABA), and Tencent.

Rewind back to 2010, Google search was directly competing against China's Baidu headed up by founder Robin Li.

Google had just 14% market share in search and was trailing far behind Baidu, which had 79% of market share.

In 2010, the difference in the quality of the search algorithms between the two couldn't have been larger.

When comparing these search engines, 85% of Google searches would populate vastly different results compared to Baidu's search platform.

Upon further inspection, Google search was deemed far more accurate than the market share leader Baidu, and that has not changed.

China's inferior technological abilities are well noted. The shortage of talent has forced them to institute forced technological transfers from western companies working in China, outright theft of technical know-how by state sponsored hackers, and the use of government loans to finance M&A activity in technological advanced countries.

In fact, Google leaving China robbed the Chinese tech sector of legitimate competition crushing the innovation trajectory or any remnants of one.

This led to the BATs running riot making money hand over fist but still trailing American tech by a country mile in terms of technical ability and innovation.

A lack of competition breeds complacency.

The reintegration of Google search into China will bring a whole new level of top-class ad technology into China.

This could be the beginning of a monumental ramp up in digital ad spend in China, which trails far behind North America and Europe in average revenue per person.

Discretionary spending is robust in China and advertisers want a piece of the action.

As much as this could be an opportunity for Alphabet to invigorate its cash-making enterprise, it is also a chance to enhance the overall Chinese tech sector.

Upon hearing Google will return, Baidu's Li laid down the gauntlet retorting that Baidu will "win one more time."

Having the communist party on your side as a tag team partner goes a long way in China and has been the main reason of foreign firms fleeing in droves in the past.

Alphabet won't have the same help.

Yet, it could learn a great deal from heading into this sensitive opportunity that could also lay the groundwork to operate in other countries with repressive governments bent on destroying freedom of speech.

Naturally, Alphabet employees weren't impressed with this new direction.

Silicon Valley is centered on left-wing social mores and adjusting its model to accommodate a totalitarian regime does not sit well with many workers.

Google saw a mini employee revolt because of Project Maven, a national defense program marrying artificial intelligence with combat operations in the United States.

Allowing Google's technology to possibly fall into the hands of Beijing would be unforgivable and a national embarrassment.

This idea is definitely not part of the low hanging fruit initiative.

This fruit is 20 feet high dangling from a distant branch.

If Alphabet pulls this off, it could add another surging driver to its portfolio, which prints money because of its digital ad segment.

It could potentially increase revenue by 30%.

Alphabet's successfully bringing in its Google search engine back from the cold, albeit censored search engine, could lay the groundwork for other American tech companies to enter the Chinese market, which would crush Alibaba, JD.com (JD), Tencent, and Baidu's share price.

Baidu dropped more than 6% upon this announcement.

The tech expertise level would naturally rise in China if American tech companies were permitted to set up shop, enhancing the total Chinese tech sector.

It would also apply pressure on China's communist government to open up its industries and do away with the protectionist stance that has been a bedrock policy fueling China's unbelievable rise from rags to riches.

China's top-level politicians must understand inward policies of this ilk do not mesh with the status of a country that is the world's second biggest economy. And it was only a matter of time before unyielding backlash ensued.

From the political side, it could possibly offer additional ammunition to the American administration if China wholeheartedly rejects Google's foray into the mainland, even if it complies with every miniscule, arcane rule Beijing throws at them.

It will prove that China is not willing to compromise or make a deal with the deal-obsessed American administration. And it will signal a dead-end road for any large cap American tech company with China aspirations.

The U.S. administration would use this as an "I told you so" moment, highlighting a history of perpetual unfair trade practices. Hopefully, it never gets to this point.

As it stands, many American large cap tech companies won't touch the Chinese market with a 10-foot pole, but the breathless scale is hard to pass up for others.

If Google is stonewalled, expect an even tougher response from the American administration hell-bent on preventing technological transfers to China.

Currently, the Committee on Foreign Investment in the United States (CFIUS) is attempting to recreate the rules to counteract the China threat.

The trade war is ultimately about global supremacy and being able to harness the biggest tool to achieve world hegemony, which is high caliber technology.

The treatment of Chinese and American tech companies by each other's government will give investors deep insight into how this all plays out.

This is Alphabet's last gasp chance at entering China. If it evolves into a spectacular failure, it always has its digital ad business to fall back on and the upcoming mass rollout of Waymo, its autonomous self-driving taxi business.

So why not take a stab at it?

________________________________________________________________________________________________

Quote of the Day

"If Google re-enters the market, it gives us the opportunity to player kill with real swords and spears and win one more time," - said founder and CEO of Baidu Robin Li.

August 10, 2018

Diary, Newsletter, Summary

Global Market Comments
August 10, 2018
Fiat Lux

Featured Trade:
(AUGUST 8 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (TBT), (PIN), (ISRG), (EDIT), (MU), (LRCX), (NVDA),
(FXE), (FXA), (FXY), (BOTZ), (VALE), (TSLA), (AMZN),
(THE DEATH OF THE CAR),
(GM), (F), (TSLA), (GOOG), (AAPL)

The Death of the Car

Diary, Newsletter

One of the goals of the Diary of a Mad Hedge Fund Trader is to identify major changes in the global economy early enough to get investors into the impacted shares early.

The death of the car is one of those trends, and it is still early, very early.

This is a very big deal.

Earlier in my lifetime, car production directly and indirectly accounted for about one-third of the U.S. economy.

Much of the growth during our earlier Golden Ages, in the 1920s and the 1950s, were driven by a never-ending cycle of upgrades of our favorite form of transportation and the countless ancillary products and services needed to support them.

Today, 253 million automobiles and trucks prowl America's roads, about half the world's total, with an average age of 11.4 years.

The demise of this crucial industry started during the 2008 crash, when (GM) and Chrysler (owned by Fiat) went bankrupt. Only more conservatively run, family owned Ford (F) survived on its own.

The government stepped in with massive bailouts. That was the cheaper options for the Feds, as the cost of benefits for an entire unemployed industry was far greater than the cost of the companies absorbed.

If it hadn't done so, the auto industry would have decamped for a new base near the technology hub in California, and today would be a decade closer to their futures than they are now.

And remember, the government made billions of dollars of profits from its brief foray into the auto industry. It was one of the best returns on investment in history.

I'll breakout the major directions the industry is now taking. Hint: It doesn't have much to do with traditional metal bashing.

The Car as a Peripheral

The important thing about a car today is not the car, but the various doodads, doohickeys, gizmos, and gadgets they stick in them.

In this category you can include 24/7 4G wireless, full Internet access, mapping software, artificial intelligence, and learning programs. 5G will accelerate this functionality tenfold.

(GM) is now installing more than 100 microprocessors in its vehicles to control and monitor various functions.

Good luck doing your own tune-ups.

The Car as a Service

When you think about it, automobile ownership is a wildly inefficient use of capital. It is usually a family's second-largest expense, after their home, running $30,000-$80,000.

It then sits unused in garages or public parking for 96%-98% of the day. Insurance, maintenance, and liability costs can be off the charts.

What if your car was used 24/7, as is machinery in well-run industrial plants? Your cost drops by 96%-98% to the point where it is almost free.

The sharing economy is the way to accomplish this.

We are already seeing several start-ups in major U.S. cities attempting to achieve this such as Zipcar, Car2Go, Getaround, Turo (formerly RelayRides), and City CarShare.

What happens to conventional car companies when consumers shift from ownership to sharing? Demand plunges by 96%-98%.

Perhaps that is why auto shares (GM), (F) have performed so abysmally this year relative to technology and the main market.

Self-Driving Technology

This is the hottest development area in the industry, with Apple (AAPL), Alphabet (GOOG), and the big European car makers committing thousands of engineers.

Let's say your car is now comfortably driving you to work, allowing you to read the morning papers and catch up on your email. Or maybe you're lazy and would rather watch the season finale for Game of Thrones.

What else is possible?

How about if, instead of parking, your car drops you off, saving that exorbitant fee.

Then it joins Uber, picking up local riders and paying for its own way. It then dutifully returns to pick you up at your office when it's time to go home.

Since the crash rate for computers is vastly lower than for humans, car insurance rates will collapse, gutting that industry.

Ditto for life insurance, as 35,000 people a year will no longer die in car crashes.

Half of all emergency room visits are the result of car accidents, so that business disappears too, dramatically shrinking health care costs in the process.

I have been letting my new Tesla S-1 drive me since last year, and I can assure you that the car can drive better than I can, especially at night.

What better way to get home after I have downed a bottle of Caymus cabernet at a city restaurant?

Driverless electric cars are totally silent, increasing the value of land near freeways.

Nor do they require much maintenance, as they have so few moving parts. Exit the car repair industry.

I could go on and on, but you get the general idea.

For more on the topic, please read "Test Driving Tesla's Self Driving Technology" by clicking here.

Virtual Reality

After 30 years of inadequate infrastructure budgets, trying to get into any American city center is a complete nightmare.

Only last week, a cattle truck turned over on the Golden Gate Bridge, bringing traffic to a halt. Fortunately, a cowboy traveling to a nearby rodeo was able to unload his horse and lasso the errant critters (no, it wasn't me!).

Even if you get into the city, you will be greeted by a $40 tab for a parking space. Hopefully, no one will smash your windows and steal your laptop (happened to me last year).

Why bother?

Thirty years ago, teleconferencing services pitched themselves as replacing the airplane.

Today, we are taking the next step, using Skype and GoToMeeting to conduct even local meetings, as we do at the Mad Hedge Fund Trader.

Virtual reality is clearly the next step, providing a 3-D, 360-degree experience that makes you feel like you and your products are actually there.

Better to leave that car in the garage where it can get a top up on its charge. BART is cheaper anyway, when it runs.

New Materials

We are probably five years away from adopting the carbon fiber technology now used in the aircraft industry for mass-market cars. Carbon has one-tenth the weight of steel, with five times the strength.

The next great leap forward for electric cars won't be through better batteries. It will come through a 70% reduction of the mass of a car, tripling ranges with existing technology.

San Francisco Becomes the Car Capital of the World

This will definitely NOT happen, as sky-high rents assure that the city by the bay will never attract large, labor-intensive industries.

Instead, the industry will develop much as the one for smartphones. The high value-added aspects, design and programming, will stay in California.

The assembly of the chassis, the body, and the rest of the vehicle will be best done in low-cost, tax-free states with a lot of land, such as Texas and Nevada.

What will happen to Detroit? It has already become a favored destination of new venture capital financial start-ups. The cost of offices and housing is virtually free.

Seems Alive to Me

August 7, 2018

Tech Letter

Mad Hedge Technology Letter
August 7, 2018
Fiat Lux

Featured Trade:
(WHAT TO DO ABOUT TECH NOW),
(AAPL), (FB), (NFLX), (AMZN), (GOOGL), (AMD), (MSFT)

What to Do About Tech Now?

Tech Letter

Is it time to dump tech?

Short term, yes - long term, no.

Recently, a series of big tech earnings misses throttled the market tearing into the positive investor sentiment, which was holding up nicely after the early year sell-offs.

Every precipitous and steep drop this year has followed with a mammoth dip buying spree lifting stocks to newer highs.

This is the type of robustness investors rejoice in when talking about the price action of technology stocks.

Not only is the dip buying awe-inspiring, but the lack of hesitation in the dip buying is even more impressive.

Investors have scant time to pick up these precious names before the entry points disappear like an invisibility cloak.

Ditch these stocks at your peril, because the buying queue represents the likes of all the tech behemoths waiting to buy back their own stock, namely Warren Buffett, and the flight to quality brigade that view big cap stocks as a de-facto cash sanctuary.

The anxiety was palpable when Netflix's (NFLX) management badly miscalculated new subscription business after a brilliant earnings report from Microsoft.

Investors got another wrench in their stomach when Facebook (FB) followed Netflix with dismal guidance ripping apart the growth narrative and pivoting toward ameliorating its controversial business model giving investors a fresh dose of uncertainty.

All eyes were planted on Alphabet (GOOGL), Amazon (AMZN), and Apple to provide some calm to the markets.

That's exactly what they did.

Part of the problem now is that expectations are so exaggerated, these companies have little wiggle room to overdeliver.

Industry specialists largely believe tech profits to rise 20.9% YOY this earnings season. The lion's share of the growth has been contained to the headliner names such as Amazon, which has grown like no company has ever grown before.

Estimates show a slide in YOY tech profits for the third-quarter earnings decelerating down to less than 15%. While still good, it's not the 20% growth YOY, and over that it has been fueling tech's rise in increasingly precarious market conditions.

The downshift in profit growth has been anticipated for the past few quarters, as investors thought a trip wire would at some point bring down the entire FANG group.

What we have found out is that not all FANGs are created equal. Some are more equal than others.

The past earnings performance indicated this with Amazon's emphatic top-line growth numbers blowing away the most adamant bear.

Netflix's narrative is still intact, and consolidation is badly needed for a stock that has gone parabolic in 2018.

The short-term capitulation of Facebook and Netflix is proof that large cap tech also has downside risk embedded in its model.

It was starting to seem like down days were never in the cards.

Lowered tech guidance for next quarter will really test the market's resiliency during next earnings season.

If these numbers miss spectacularly, expect the tech sector to give back a good chunk of the year's gains back.

Decelerating profits is never a positive sign. However, after coming from Mt. Everest profit levels, will the markets brush it off and power higher?

There is a lot more juice left in this tech story, and sharp corrections should still be bought.

Tech is becoming quite frothy at these levels and choosing the right tech story will go a long way to sleeping well at night.

It will be excruciatingly difficult for tech companies to impressively beat on the upside next quarter.

However, the secular story and unique earnings growth are treasures compared to other sectors that are getting beaten into submission.

When you delve into the numbers, the success becomes comical.

Apple is the first company to cross the $1 trillion of market cap.

This company prints money to the tune of $11 billion in profits each quarter.

It possesses a devoted userbase, surging software and services segment, and premium grade smartphones allowing Apple to cash in profits to the extent they do.

CEO Tim Cook sent an email to Apple's employees downplaying the milestone, instead saying "financial returns are simply the result of Apple's innovation."

He is completely correct.

The innovation has fed back through spiking profits and boosting sales allowing Apple to make money hand over fist.

This in turn is a big reason why Apple's share price has almost quadrupled with Cook at the helm.

The best and brightest tech companies in 2018 share one unified trait: innovation.

And it is not a surprise that Amazon and Microsoft (MSFT) will be next to join the trillion-dollar club as they boast some of the most innovative staff in the world.

As these two companies pass the trillion-dollar market cap, it will encourage the next tier of flourishing tech companies to make the jump to the trillion-dollar club.

The tech sector is still eating everybody's lunch with every business in the world migrating to their front yard.

Some weakness in the extended tech shares have been a matter of when and not if.

Advanced Micro Devices, Inc. (AMD) is a stock gaining 22.8% just in the month of July underlining the overheated price action of some of these tech names.

I am largely staying away from chip stocks now because trade tensions have bred uncertainty around Chinese chip revenues.

The tech sector has many moving parts and a trade war can hurt one part of tech while others remain unblemished.

Another front of concern is data regulation headlines rearing their ugly heads from time to time.

There are more hurdles for tech stocks going forward, but that does not mean they will get tripped up.

I am in a tech holding pattern until I find an opening to issue my next slew of tech trade alerts.

Year Over Year Profit Growth

________________________________________________________________________________________________

Quote of the Day

"I will always choose a lazy person to do a difficult job because a lazy person will find an easy way to do it." - said founder of Microsoft Corporation Bill Gates.

August 6, 2018

Diary, Newsletter

Global Market Comments
August 6, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or FINDING A NEW GIG),
(FB), (TWTR), (INTC), (NFLX), (AAPL), (AMZN),
(RIGHTSIZING YOUR TRADING)

The Market Outlook for the Week Ahead, or Finding a New Gig

Diary, Newsletter, Research

I'm back! Yes, I have freshly debarked from the KLM 10-hour nonstop from Amsterdam, with little gin bottles in the shape of old Dutch houses in my pockets.

And what do I do upon landing but rush to pound out another newsletter, digesting what I learned from reading a mountain of research on the way home.

Oops! It looks like I forgot how to type!

My 24-hour layover there enabled me to view the great Rembrandt masterpieces at the Rijksmuseum and explore Anne Frank's house, now part of a large museum complex. When I visited there 50 years ago you could just walk right in the front door, as there was almost no one there.

It was not a bad summer as far as losses go; a charger left behind on the Queen Mary, a hair brush in Paris, and all of my money in Zermatt, Switzerland. That last item was the result of my daughter breaking an ankle while riding a scooter down the Matterhorn.

If you are going to break something make sure you do it in Switzerland. The X-rays, MRI scans, doctors, and cast cost me only $1,000. The same would have cost me $10,000 in the U.S. But the wheelchair set me back $650. A better one could be had at home from Amazon for $115.

Still, there is no better way to breeze through customs and immigration but in a wheelchair. We avoided the long lines and saved so much time that my other daughter promised to break her ankle next year to achieve the same shortcuts.

Arriving at home in San Francisco it immediately became clear that a lot of chart formations are busted as well, especially those for Facebook (FB), Twitter (TWTR), Intel (INTC), and Netflix (NFLX). Apple (AAPL) is bumping up against my 2018 target of $220, while Amazon nearly hit my $2,000 goal.

With tech likely resting until the NEXT round of 25% earnings growth that starts in two months, we are going to have to find a new gig to earn our crust of bread. That will most likely be small caps, value plays, and multiyear laggards. Last year's big August play was in steel, gold, industrials, and commodities, which are all now getting hammered by trade wars.

Even if I had stayed at home in July trading like a one-armed paperhanger I'm not sure I would have made any money. Tech melted up, then melted down, and as we all know from hard-earned experience, the losses always cost more than the gains.

The week went out with a July Nonfarm Payroll Report that was tepid at best at 157,000. But headline unemployment stayed at 3.9%, a 17-year low. With the fifth week of gains and the (SPY) now up 6.2% in 2018 it appears that the markets only want to hear good news...for now.

Professional and Business Services were up 51,000, Manufacturing gained 37,000, while Hospitality and Leisure picked up 40,000 jobs. The bankruptcy of Toys "R" Us seems to have cost the economy 32,000 jobs. The broader U-6 "discouraged worker" unemployment rate fell to 7.5%.

Now is the golden age of the working high school dropout, the criminal background, and the DUI conviction. Many companies would rather hire former junkies that pay up for expensive college grads, which is why wage gains are still going nowhere, and perhaps, never will. Expensive retiring baby boomers replaced by cheap minimum-wage millennials is also a drag on wages.

Deflation isn't just hitting wages. It is destroying the financial industry as well, as high-paid yuppies are replaced by robots. This is the first bull market in history with no net hiring by Wall Street.

Wells Fargo no longer actually manages money, although it will readily accept your money to do so and farm it out to bots. Fidelity launched the world's first zero fee index fund, the Fidelity ZERO Total Market Index Fund (FZROX). As interest rates are now providing new income sources for managers, expect negative fee funds to come soon.

Markets are certainly climbing a wall of worry, a Great Wall. The Chinese are matching our threatened 25% tariffs on an additional $200 billion of trade with $60 billion of their own. After that retaliation will have to take indirect forms, as they have run out of tats to match our tits (oops, doesn't really work, does it?).

They might shut down the massive General Motors (GM) plants in China, where they sell more cars than in the U.S., and a LOT more Buicks. They could also interfere with the Apple assembly line. Remember, trade wars are only easy to win when you run a dictatorship. They could also continue weakening the yuan to offset the tariffs, as they have done so far. We can't retaliate there with a rising interest rate regime.

Speaking of rates, you can bet your bottom dollar that the Fed will raise them another 25 basis points to a 2.0% to 2.25% range at their upcoming September 25-26 meeting, after having passed last week. A market killing inverted yield curve is now only months away. Rising rates don't matter until they do, and then they matter A LOT!

Also, of concern is the appreciating levels of the Mad Hedge Market Timing Index, which at a nosebleed 71 is approaching seven-month highs. Buying up here never offers a good risk/reward ratio.

As I have been climbing in the Alps and out of the markets my 2018 year-to-date performance remains unchanged at an eye-popping 24.82% and my 8 1/2-year return sits at 301.29%. The Averaged Annualized Return stands at 35.10%. The more narrowly focused Mad Hedge Technology Fund Trade Alert performance is annualizing now at an impressive 38.69%.

This coming week will be a very boring week on the data front, which is usual after the big jobs reports of the previous week..

On Monday, August 6, there will be nothing of note to report.

On Tuesday, August 7 at 8:30 AM EST, the May Consumer Price Index is released, the most important indicator of inflation.

On Wednesday, August 8 at 7:00 AM, the MBA Mortgage Applications come out. At 2:00 PM EST the Fed is expected to raise interest rates by 25 basis points. At 2:30 PM Fed governor Jerome Powell holds a press conference.

Thursday, August 9, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 13,000 last week to 222,000. Also announced are May Retail Sales.

On Friday, August 10 at 9:15 AM EST, we get May Industrial Production. Then the Baker Hughes Rig Count is announced at 1:00 PM EST.

As for me, I'll be recovering from jet lag and getting back into my groove. I'll send you a Trade Alert as soon as I find a good entry point. The year-end sprint is now on.

Below look at the gigantic smoke plume rising to 40,000 feet from the massive California fires that I flew past on the way home.

Good luck and good trading.

August 6, 2018

Tech Letter

Mad Hedge Technology Letter
August 6, 2018
Fiat Lux

Featured Trade:
(NEXT STOP IS $2 TRILLION),
(AAPL), (AMZN), (MSFT), (NFLX), (FB), (GOOGL), (TWTR), (CRM)

Next Stop is $2 Trillion

Tech Letter

Another win for big tech.

Apple (AAPL) is the first company in America to have a trillion-dollar market cap and won't be the last as Amazon (AMZN) is close behind.

This also opens up the door for one of our favorite companies Microsoft (MSFT), which will shortly cross the $1 trillion threshold as well.

The milestone underscores the reliability and power of the tech sector that has propped up this entire market in 2018 as we continue the late stage cycle of the nine-year bull market.

Apple has entered into a hyper-charged expansion phase, and I will explain how this will boost shares to new heights.

The Mad Hedge Technology Letter has been hammering away on the software and services narrative since its inception.

As legacy companies are pummeled in the financial markets, the cloud has enabled a revolutionary industry catering toward annual subscriptions of all types.

Users no longer have to store gobs of data on computers. The cloud allows the data to be stored on remote data servers giving access to the information from anywhere in the world with an Internet connection.

A plethora of modern hybrid apps boosting productivity integrated with the cloud offers business a new-found way to collaborate with coworkers around this increasingly multicultural, multilingual, and globalized world.

Apple is perfectly placed to take advantage of the current technology climate and will wean itself from the image of being a hardware company.

Investors wholeheartedly approve of the conscious move to bet the farm on service and subscriptions.

After Apple's earnings came out, the stock traded up whereas in past quarters, the total sales unit was the crucial number investors hung their hat on and the stock would dip.

Apple missed iPhone total sale units registering 41.3 million compared to the expected 41.79 million units.

This slight miss in the past was enough for the stock to sell off on and instead the stock rose 3%.

This is the new Apple.

A software services company.

Investors can feel at peace that iPhone sales aren't growing. It's not that important anymore.

Apple's software and services segment pocketed $9.55 billion in revenue, a 31% jump YOY from $7.27 billion.

This has been in the making for a while as software and services has been a five-star performer for the past few quarters.

However, the performance is material now and the pace of improvement will take Apple into the next phase of hyper-growth.

This is all good news for the stock price.

Software and services revenue now comprise 17.9% of Apple's total revenue.

By year-end, this division could topple the 25% mark.

In the earnings call, Apple CEO Tim Cook was smitten with the software and services growth saying this particular revenue will double by 2020.

In the next few years, software and services will eclipse the 40% mark, all made possible inside an incredibly sticky and top-quality ecosystem.

The iPhone continues to be the best smartphone the market has to offer. If you marry the best hardware with top-quality software, this stock will chug along to higher share prices unhindered.

As the technology sector matures, the flight to quality becomes even more glaring.

The inferior platforms will be found out quickly heightening the risk of massive intraday sell-offs and revenue-depleting penalties.

Facebook and Twitter have seen 20% sell-offs hitting investors in the mouth.

These platforms have issues rooting out the nefarious elements that seek to infiltrate its operations and manipulate the platform for self-serving interests.

Apple does not have this problem. Neither does Microsoft, Amazon, Netflix (NFLX) or Salesforce (CRM), and I will explain why.

When you offer services for free such as Facebook (FB) and Twitter (TWTR) do, you get the good, bad, and ugly bombarding the system.

Even though it's free to use these platforms, Facebook and Twitter must spend to make it useable for the good forces that made these companies into tech behemoths.

Instead of rooting out these rogue elements, they turned a blind eye describing their businesses as a distribution system and were not accountable.

Then sooner or later one of the evil elements would get these companies in hot water. It happened.

Big mistake, and the chickens are coming home to roost.

The flight to quality means avoiding public tech companies that only offer free services.

You pay for what you get.

Alphabet also has seen its free model penalized twice in Europe with hefty fines, and it probably won't be the last time.

Play with fire and you get burned.

It also offers Cook the moral high road, allowing him to non-stop criticize the low-quality platform companies, mainly Facebook, because it makes the whole tech sector look bad.

The bite back against technology in 2018 is largely in part due to these low-quality free platforms manipulating user data to ring in the profits.

Amazon has been public enemy No. 1 for the Washington administration but not to the public because the loathing of Amazon is largely a personal issue.

Amazon improves the lives of customers by giving users the best prices on the planet through its comprehensive e-commerce business.

Apple now constitutes 4% of the S&P 500 index.

Investors have been waiting for Apple's Cook to sweep them off their feet with the "next big thing."

Even though nearly not as sleek and sexy as a smartphone, the software and services unit are it.

Apple doubling down on high quality that I keep mumbling about shows up in average selling price (ASP) of the iPhone, which destroyed estimates of $694, coming in at $724 per unit.

The bump in (ASP) signals the high demand for its higher-end iPhone X model over the lower-tiered premium smartphones.

The iPhone X is the best-selling iPhone model because customers want the best on the market and will pay up.

The success of the iPhone X lays the pathway for Apple to introduce an even more expensive smartphone in the future with better functionality and performance.

If Apple can continue innovating and producing the best smartphone in the world, the price increases are justified, and demand will not suffer.

Perusing through some other parts of the earnings report, cloud revenue was up 50% YOY.

Apple pay has tripled in the volume of transactions YOY surpassing the billion-transaction mark.

China revenue has stayed solid even with the mounting trade tension. I have oftentimes repeated myself in this letter that Apple is untouchable in China because it provides more than 4 million jobs to local Chinese directly and indirectly through Apple's ecosystem.

This prognosis was proved correct when Apple announced revenue in China of $9.55 billion, a spike of 19% YOY.

Even though much of Apple's supply chain remains in China, Beijing isn't going to take a hammer and smash it up risking massive social upheaval and public fallout. In many ways, Apple is an American company masquerading as a Chinese one.

As for the stock price, the explosion to more than $208 means that Apple is overbought in the short term.

If this stock dips back to $200, it would serve as a reasonable entry point into this record-breaking hyper-growth software and services company.

And with the $234 billion in cash planned to be deployed in Apple's capital reallocation plan, the biggest hurdle is the federal daily limit Apple has in buying back its own stock according to Apple CFO Luca Maestri.

Even the problems Apple has right now are great.