Wednesday, November 11, 2015

Bull & Bear Cases for Apple

First, being that it's Veteran's Day, we wanted to take the opportunity to thank those who have served and sacrificed for our country.  There are no braver people in this world.

The topic of today's post will be addressing some of the current bull and bear arguments for Apple (AAPL).  We were motivated to do this because we believe that if the market is to go higher it will do so on the backs of some of its main players like Apple.  Considering the stock's weighting in the S&P (3.75%), DOW (4.40%) and Nasdaq-100 (14.60%), we know that the market has an easier time establishing a direction if a stock of Apple's significance is playing along.

Bull Case
  • Valuation remains low as the stock currently trades at a 13 P/E. 
  • Last quarter's earnings grew by 38% on a year-over-year basis.
  • The stock remains in a long-term uptrend as evidenced by the chart below from Kimble Charting Solutions and the stock has been threatening the uptrend line over the last several years.
  • AAPL continues to be a fund manager darling and is widely owned by institutions.

Bear Case
  • Despite the strength of last quarter's earnings the company is seeing slower year-over-year growth. 
  • Given that the stock is incredibly widely owned, we often wonder who is left to buy?
  • A potential year-long head and shoulders top has formed on the daily chart (chart #2 below)
  • Overhead resistance at the 161.8% Fib extension (chart #1 below)
  • The stock had a failed throwback rally to the broken uptrend line (chart #1) and was rejected at the 200-day moving average (chart #2) with yesterday's gap-down after the bearish note from Credit Suisse.

The last two trading days have seen AAPL catch a bit of a bear raid.  We'll see if the stock is able to stabilize in this area or if a trip to the $100-110 area is in the works.

Ryan Worch is the Managing Director of Worch Capital LLC. Worch Capital LLC is the general partner of a long/short equity strategy that operates with a directional bias and while emphasizing capital preservation at all times.

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