Apple NASDAQ:AAPL is down 33%, Time to Buy?
Apple NASDAQ:AAPL is down 33%, Time to Buy?
Apple topped last September, it was the Hot Story, as it marked all time highs, the media was on it like paint. but based on the sentiment indicators, it looked like a top had formed.
Since then Apple’s stock has come down by about 33%, and many investors are wondering if now is the time to buy it back.
While it might seem like a great time, I would wait, here’s why;
The TV talking heads might make it seem like everyone has given up on Apple, that is not the case.
There are 58 brokerage firms that cover Apple, 48 have either “buy” or “strong buy” recommendations on the company.
Only one brokerage has a “sell” rating, and 2 brokerages have “under perform” ratings.
Last September just 1 brokerage had a “sell” rating on the company.
Analysts are less Bullish on Apple, but 95% of analysts still have a “hold” or better rating on the company. .
And, investors have not given up either. In fact, based on one measure, investors are coming back in now.
When Apple topped, there was an extreme in the ratio of the volume of Put/Call option trading.
When you buy a Call option is a bet that the stock will go higher, and when you buy a Put option is a bet that the stock will fall.
Back in September, traders were buying a high volume of Call options, relative to Puts. They were betting that shares would head NOrth. The contrarian trade was to take the opposite bet, to go short Apple.
Today, with Apple’s stock falling, one might expect investors to follow the trend and Short the company. But that’s not the case today.
Friday, the Put/Call volume ratio is at its lowest level in 11 weeks. That means investors, specifically, options traders are the most Bullish they have been since early November.
The Contrarian play says never buy when everyone is Bullish. Extreme bullishness often causes the market of buyers to dry up, no buyers, the stock usually goes lower.
Today, AAPL is at a 52 wk low, yet the consensus analysts call is: Buy
Even though the stock is falling, investors are optimistic. Option traders are trying to buy the bottom in here.
And they could be right, Apple’s stock could reverse in here, the products are terrific, and the company is still a good value, but perhaps today (Friday) is not the best timing on the buy side.
Apple is off 33% in 4 months, the trend is down and yet investors are very Bullish the stock, and analysts including me love the company.
The Contraians POV is to wait for the opposite to emerge, buy when the stock is hated not loved, buy it after it has really bottomed and is in an established up-trend, remember, always limit the risk.
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Heffernan Capital Management
Business Development Director – Private Client Group,
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Bharat Building Singapore 048617
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Paul A. Ebeling, Jnr.
Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.
Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.
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