The AAPL blunder

S&P500 daily at 1:25 EDT

MARKET BEHAVIOR
Stocks traded around 1680, digesting recent gains.  Money managers returning from summer vacation are more inclined to buy the discount than sell the risk.  Early losses turned green by late morning and if we hold these modest gains, it will be seven in a row and nine out of the last ten.

MARKET SENTIMENT
Recent anxiety is dissipating and so far buying the fear has been the savvy trade.  Bears who were certain we were headed for the 200dma pressed their shorts, but are now scrambling to unwind their positions, providing much of the demand lifting us toward all-time highs.

Taper is a page-5 story as Syria and Apple dominate the headlines.  But remember, anything on the front page is already priced in, meaning we need to dig deeper, looking for that new, up and coming story.  We are approaching another fiscal cliff, but that’s a broken record and while it will make the market a little uneasy, we’ve been there, done that, so don’t expect a big selloff.  Recent dip buyers obviously don’t fear modest weakness, so expect them to sit through continued volatility.  Their resolve to hold keeps supply off the market and adds stability.

TRADING OPPORTUNITIES
Expected Outcome:
Stick with what is working as this market is drawn toward 1700 and all-time highs.  We covered a lot of ground in two weeks, so a red day here or there is expected, normal, and healthy.  Where we go after new highs is a bigger question.  Are we in the middle of the last buyable dip and will finally see the selloff everyone’s been waiting for this fall?  Hard to say and we will take it day by day, but so far the high probability trade remains higher as we recover from oversold levels.

Alternate Outcome:
Bulls are back in control, but if they cannot maintain control and stumble in coming days, that signals demand is drying up and this is nothing more than a sucker’s rally.  Failing to hold the 1670/50dma shows buyers are unwilling to support these prices and we can actually start looking at shorting that weakness.

Trading Plan:
Own the market as long as we hold the 50dma/1670.  Disciplined shorts are long out of the market, hopefully capturing a nice profit.  Any bear who overstayed their welcome are watching profit evaporate and turn against them.  Countertrend trades always need to be quick and nimble.

AAPL daily at 1:25 EDT

INDIVIDUAL STOCKS
What is the value of an innovative company that can’t innovate?  We are about to find out.  AAPL missed the mark so badly with the iPhone5c and iPhone5s, it was like they were shooting with their backs to the target.  “C” certainly doesn’t stand for cheap because there are only a couple of phones more expensive than its unaffordable $550 price tag.  So much for breaking into developing markets.  Don’t get me wrong, the “C” will be a strong seller, how could it not be, it is the new, cool, and fun phone from AAPL, unfortunately its success will come almost entirely from cannibalizing the flagship “S” model.  Sure the “S” has a 64-bit A7 chip, but all the techno-geeks who care about that stuff already defected to Android phones two-years ago.  For most people, the only functional difference between the “C” and “S” is the fingerprint scanner.  A $100 premium is pretty steep, especially since Apple already acknowledged most users don’t care enough about security to lock their phone.  This also assumes the fingerprint reader works as advertised and is more reliable than recent “innovations” like Siri or Apple Maps.  If it takes two or three attempts to recognize my fingerprint, I’ll stick with the passcode.

When the “C” becomes AAPL’s best-selling model, we need to be ready for a material hit to revenue and earnings.  Some analysts point to strong margins on the “C”, but profits are measured in dollars not percentages, so strong margins don’t count for shit if earnings are falling.  AAPL really missed the boat with the “C” to make smart phone with global appeal.  I would have loved to see a iPhone3gs type of device priced around $200.  That would have been a home run and brought a lot of new people to the brand without cannibalizing the flagship model.  In reality the “C” is nothing more than the “5” with a less expensive plastic back.  We didn’t see anything on Tuesday to stem the market share losses and over the next two years expect to see the iPhone and iPad with single digit market share.

One of the more interesting nuggets from the presentation was AAPL’s announcement it is giving away their office suite for free on mobile devices.  Are they seeing early signs of professional users migrating to the MSFT‘s SurfaceRT which includes office?  It sure is a strange move on AAPL’s part, responding to a device with a paltry 3% market share unless their research shows it as a real, up and coming threat.  That admission by AAPL could be a bullish signal for MSFT and the Surface.

Plan your trade; trade your plan