Members Trade Update: $AAPL Continued & the Inevitable Pullback

Important perspective: On a pre-split adjusted basis, AAPL is already trading above $1000 a share. Today AAPL closed at $147.51. So pre-split that's $1032.57 to be exact ($147.51 x 7). Also, from the low of the summer bottom of $89.47 to the high of $148.09, AAPL has rallied more than 65% from trough to peak in the last 11.7 months.

First off, let's be clear that our forecast model on AAPL is still very much in bull mode. We're not cheering or forcing a bearish thesis on AAPL. We are very much AAPL bulls here. But we need to be grounded in reality that AAPL is not going to double valuation overnight. It takes time. We're actually in the perfect sweet spot to start to see a meaningful pullback right about here. Which would bode well for us entering new long positions that conservatively tilted with more upside. We only want to be buying a call spread on AAPL once we get heavily discounted premiums that occur when AAPL is pulling back within a strong uptrend. We have the strong uptrend obviously, now we just need to see a meaningful pullback occur next. Despite what happens in the next coming quarters...AAPL is still en route higher. But like any hyper bull the move to the upside is eventually unsustainable without a meaningful pullback. There is evidence to suggest that we should be getting that pullback here in this next quarter. We've been discussing this for a while and as you can doesn't happen overnight. First, the total continuous run Apple has had from November until today has now reached 42.56%. This is a continuous run with only a 3.3% pull-back in early April.

Also, Apple is trading at a 17.7 P/E ratio which is at the high-end of its historical range. We're at levels normally only seen at the end of an Apple bull run. But we haven't hit peak PE values yet...we're just about there but there is still more upside to AAPL. So the peak in 2012 and the peak in 2015 for example. Both times Apple was at a 17 P/E ratio. In 2015, Apple briefly went above 18 it seems at the very peak -- we're 17.7 today. See below:

Apple continues to trade at peak levels above its 200-day moving average. Again, distances we have only seen near bull market peaks. This isn't just ahead of a normal correction or something. The last two times Apple was at these levels, we saw 46% and 37% corrections. We're not saying that AAPl should follow a correction even close to that size. AAPL is still very much going higher from here. But this is the perfect zone where we should see a meaningful pullback or consolidation lull of some kind. Take a look below:

Apple has pretty much never been more overbought in its entire history. Not during the iPod era or during the launch of the iPhone. The launch of the iPhone didn't elicit overbought conditions like we've seen in this rally. The NASDAQ-100 has never seen more overbought conditions than we've seen in this rally. And the only time we've been this more over extended above the 200 day moving average was in 2012. Right now we're just right under that in terms of distance.

These are all reminders that when this rally does finally buckle and a correction starts happening, there are that many people piled on to the long side. And most importantly, a 12% correction from $150 a share is $132. Which is a very moderate & normal type of pullback. And one can see how Apple could make that run down to $132. And if it's hard to conceive how Apple in this hyper bull can do that, just remember that Apple ran 70% between November 2011 and April 2012 and had a 20% correction nonetheless. So even on the way to a 70% run there were 20% pullbacks along the way. The point is that Apple has been in a hyper bullish situation in the past and still underwent a correction notwithstanding. After Apple reports earnings today, there will be a 3-month void of information. Remember, Apple doesn't introduce the iPhone X until 6-months from now. So we're now headed into a very prolonged period of time where Apple will do what exactly? The only news we have is the tax news and there is a lot of debate as to whether that will actually go through. So the point or take away from all of this is that even after Apple reports earnings, we still have a nearly 3-month period until July or 12 trading weeks. It only takes 2-3 for a correction to bring Apple down to its lows and we're now at 115 days+ into this rally. The take here is there is still a very high probability that the market and Apple undergo a correction or pullback of some kind this summer. Pullbacks are normal. It doesn't necessarily mean that there is anything wrong with the macro trend. AAPL is very much going higher but the likely hood that this next quarter start a consolidation lull or correction of some kind is there. And chances are I think that starts to happen after earnings season winds down. I can't remember if there is a time in history where Apple has rallied through three consecutive earnings seasons without a correction. I don't think it has ever happened. In fact, I don't think two seasons has ever happened. And that's what we would be talking about here. Apple rallying through three earnings seasons without a correction is eventually unsustainable. So it's prudent to expect that pullback to happen right about here. It's a perfect zone for AAPL to chill out and see some corrective behavior. The register gets rung eventually.

Some of the greatest pearls shared by Jesse Livermore:

“Money is made by sitting, not trading.”

“The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money everyday, as though they were working for regular wages.”

“Buy right, sit tight.”

“Nobody can catch all the fluctuations.”

“There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”

“It takes time to make money.”

“Don’t give me timing, give me time.”

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