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Saturday, May 14, 2011

thoughts on AAPL

A lack of real-time tic-by-tic action is like walking in a dark room where you can barely see whats in front of your face. (I managed to make successful trades this week, but I need tic-by-tic quotes.)

Around 3:15, AAPL started to decline. It was a pretty clear deviation from the market action.

It looked like as fund was selling (or forced to sell), with the increase in volume past 3:15pm.

For the most part, AAPL has been in a very tight consolidating triangular range since reporting earnings.

The intra-day tells me one big-boy took it down, making it appear as an obvious breakdown. The long-term technical trend is still intact.

The new concept with AAPL, that I have embraced, is that the market is no longer rewarding its growth. I can understand this. The big-boys are skeptical, and imo, the concept is embodied with this Martin T. Sosnoff's Forbes article. (Despite the fact that anyway AAPL is assessed, it is very inexpensive.)

Apple is in a position it has never known before.  The big boys that want to own AAPL, already own it. And the ones that did, but sold, need more reasons to own it with its mega-cap status. Basically, this means Apple must optimize their cash position. However, since we know Apple most likely will not issue a $20billion buy-back (no matter how much I would love to see them do this), as a trader, the current trading dynamic of the stock suggest AAPL will have a new trailing PE range.

The new range is between 16-18, and since I trade on the conservative, the targeted trailing PE is mid 16. (If AAPL issues a massive buy back, that changes the trading dynamic, and the trailing PE could expand again.)

AAPL has eps growth momentum for the next two quarters (so I doubt a buy back will be issued within the next 6 months), but this eps growth will place a new base for the stock.  With a trailing PE of 16, AAPL is currently trading at 340. However, when factoring next quarter's eps (5.60) AAPL will have a trailing PE of 16 when it is around the low 370s.

On Monday, I will be repositioning my AAPL Oct 350 calls to an equivalent amount (option number) to the 335 Oct Calls. (This will effectively increase my position in AAPL.)  I will not sell these calls until 370 is seen with AAPL's stock.

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