Last time I shorted AAPL was ideal before the peak of the pre-corona market. Some might state I was fortunate with my timing and that my brand-new short does not have the novel catalyst of a pending pandemic. Fair enough, however consider my reasons for a pending Apple pullback before dismissing me.
The recent analysis on Apple (NASDAQ: AAPL) at Seeking Alpha concluded with a momentum thesis, not a mean-reversion thesis. At the time of publication, I was recommending my subscribers follow me in shorting the stock. Let this article be my counter-point, my thinking for shorting AAPL once again.
Apple Is at War
While we do not currently have the previous atmosphere of “its just a flu” with regard to COVID-19, we do have a similar atmosphere with regard to the designer dissent in the App Store. From Facebook (NASDAQ: FB) to Epic Games, designers are feeling mistreated by Apple, mentioning unfair treatment and (presumably) exceedingly large deal costs. Apple, obviously, claims that the 30% transaction fee is both reasonable and nothing new– the rate has actually been stable considering that the start of the App Store.
My previous AAPL brief relied partly on false information about the seriousness of SARS-CoV-19 (termed 2019-nCoV at the time of composing) and its effects on the Apple supply chain. Through my many analyses on Apple investor patterns, I have actually discovered that Apple investors are overly optimistic relating to problem. That is, they tend to discount the drawback of the prospective unfavorable drivers, just dropping the stock once the situation is clearly not kipping down their desired instructions.
If you are confused regarding why many business are unexpectedly grumbling about a long-held requirement, look no further than Apples recent organization deal shift: from products to services. While Apple previously functioned as a platform on which services might release and disperse services, it is now directly taking on a number of its clients. The company is bundling together memberships that can effectively push its App Store clients to lower incomes, all while still taking that sweet 30%.
Clear Bias in Apple
The more upset designers standing throughout from Apple, the more power they have to effectively boycott or alter the App Store policies. Apple requires a vaccine.
Put merely, Apple is taking on its competitors while holding ownership of the platform. That is, must Apple Service A and external Service B remain in direct competitors through the App Store, cost the services similarly, and be equally popular, Apple still triumphes by collecting 100% of service As earnings and demolishing 30% of Service Bs earnings; this does not explain a reasonable competitive environment.
No Winning Strategy
Sadly, with 30% of Apples revenue stemming from App Store circulation, almost any change that appeases developers will put a dent in Apples earnings. The best-case circumstance is Apple minimizing its 30% deal fee. Even worse circumstances include dragged out legal battles that end in a change in business model and a full-on boycott of the App Store, driving developers (and consequently consumers) to other distribution platforms. In any scenario, Apple sees lowered financial numbers. Reduced profits and revenue will be reflected in profits reports and drag down the stock– a stock that is trading at an all-time high, overbought, and dot-com level valuations. This is not a time to dismiss the capacity that Apples stock will fall.
As revenues drive stock rates, this problem could mark a short-term peak for Apples stock rate. The timing remains in line with Apples seasonal pattern– and the markets general seasonal pattern– of drawing back in September. I need to advise readers that I am not an Apple bear, but do write cautions about this stock when I think pullbacks are looming, as you can see from my many posts on Apple in the past.
From a historic perspective, Apples worst month (read: most likely to underperform) is September:
Naturally, a great deal of this technical stuff is just to support the seasonal play. My objective is just to hold over September, which is when I anticipate the pullback to take place. Its an easy seasonal trade with a month-long holding duration.
Selling calls has limitless upside danger, while purchasing the puts limits you to risking only the debit on the put alternatives. Choose whichever is better for your danger tolerance.
Disclosure: I am/we are brief AAPL. I have no company relationship with any business whose stock is pointed out in this short article.
Cash circulation is getting weaker in AAPL, and usually this is when you desire to open short positions. The typical pullback would put us in the series of $110 to $115. The secret is passing listed below the support level at $125.
Offer Sept. 18 $132.50 calls.
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Through my many analyses on Apple financier patterns, I have discovered that Apple financiers are overly optimistic relating to bad news. With 30% of Apples earnings stemming from App Store distribution, almost any modification that calms designers will put a dent in Apples income. As earnings drive stock prices, this concern could mark a momentary peak for Apples stock cost. I must advise readers that I am not an Apple bear, however do write cautions about this stock when I believe pullbacks are looming, as you can see from my numerous short articles on Apple in the past.
Buy Jan. 15 $130 puts.
I wish to sell calls. You can go with long puts, too. I simply feel that the puts are a bit pricey right now (most places on tech stocks are right now).
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How to Trade It.
Or.
I therefore am issuing such a warning. Now is not the time to be elated in spite of AAPL striking new highs. Apples war with its App Store developers will not end with Apple as a winner– at least in the short-term.
Apples war with its App Store developers will not end with Apple as a winner– at least in the short term.
( Source: Damon Verial; information from Tiingo).
I motivate you follow me in shorting this stock. Here are the play and technical aspects supporting the play I advised on Monday. On Wednesday, the time of writing, I think the following choice method is still valid.
We also have an open space at around $118. This looks to me like an area gap. Our pullback target fits together with the idea that this is an area space, allowing the gap to fill over our holding period.
Pleased trading!
