AAPL far more upside risk than downside risk – How we intend to capitalize on the panic.

Updated: Jul 29, 2019

UPDATED - January 3, 2019


BotTrigger Trade Alert: $AAPL obvious enough we got filled within the first minute of this morning's limit order. The limit order was set @ $2.50 & we got net-filled @ $2.40. New Limit Order set to add @ $1.50. Now if AAPL can manage to pullback to that last Pivot High which is $134.54 (the top of 2015) ...then we can expect to see the value of the January 2021 $210 / $230 call spread come down to as low as $1.75 - $1.50. Better if we get a GAP-DOWN flush as that's when option premiums get erratically swung more abnormally due to the volatility panic that ensues on GAP-DOWNS. We're hoping for it as it would be a gift if we can see AAPL back down to the mid $130's. As it is thus far, AAPL hit an intraday low of $142.00 which now represents a -39.10% correction. AAPL tagging the $134.54 PIVOT HIGH would represent a peak-2-trough correction of -42.37%. Remember the 2012 Bear raid on AAPL saw a -45.38% correction on a post-adjusted basis pre-split...that's when AAPL reached a high of $704 in early fall of 2012 & then bled out for almost a whole year from there hitting a low of $384 per share. This correction on AAPL is bar none the steepest pullback with regards to being the quickest duration relative to the depth of the pullback. I want everyone to take notice of this chart here as it measures the distance AAPL has traveled below it's 100-day moving avg on the daily. We are @ absolute record extremes in terms of the distance now below the 100-day MA. This is a dramatic market over-reaction that inevitably will be corrected. The bad news has largely been baked in @ this point.

I want to make note for new members that in order to really digest the context of the post below, you will need to read 3 of our most dedicated posts on AAPL where we connect the dots with a compendium of research that has been ongoing that studies the behavioral implications both fundamentally & on a technical basis to AAPL's bull & bear rally periods. I've highlighted these posts down below as you keep reading.

So this rally on AAPL is of no surprise. Even in AAPL's most horrendous bear market periods like the 44% decline we saw in 2012-2013 & the -34% correction we saw in 2015.... even then, that didn't stop a rebound from happening in the range of 10 to 20% at minimum. Not once has that not happened while AAPL was in a confirmed downtrend. There is not a solitary exception. Even in the deep throes of the financial crisis, we still saw retracements, much like what you're seeing take place today on AAPL. Even in 2012, when Apple crashed on Q1 earnings, it then underwent a big rebound. This was even after Apple already had a 17.5% rebound and 44% retracement. We're talking about the beginning of the second leg down. We had a poor earnings situation, the stock collapsed on those earnings and a few days later it began a 13% rebound. So there is even precedent for an immediate rebound even after Apple crashes after earnings and is down 38-40%.

First off, today's price action on AAPL is off to a great step in the right direction. There are multiple reasons why this push above $150 might send Apple on an immediate bear market rally in the range of a 10 to 20% rally easily from the $142 lows that we have thus far seen.

Apple's correction history is very predictable and something we've been cataloguing and studying for a very long time now. Old time Members will recall some of our most dedicated posts covering this subject on the seasonality evidence that presents itself both fundamentally & how it technically reveals it's hand on the macro charts. I encourage you all to re-read the following posts, especially new Members who have since joined.

$AAPL - The Most Important Chart on Apple - Bull & Bear Cycles


AAPL'S MACRO BULL & BEAR CYCLES - Bear Raid likely to Start Mid 2018


Apple (AAPL) 3 Reasons Why AAPL Has Bottomed


We've shown this table before but I'm going to resurface it as it's pertinent to getting a measure on what we might be able to expect as AAPL fleshes out a bottoming pattern. Here is the table which shows every single major leg down in Apple's history going back to 2006. I exclude pre-2006 data precisely because Apple was a different company prior to 2006. Remember, January 2006 was the breakout year for the iPod Nano. It is when Apple rallied from $50 to $86 between July 2005 and January 2006. That is a clear dividing line for the company. Pre-Jan 2006 date is just not useful. Hell, some can even argue that pre-iPhone era isn't useful either:

Again, we've been in extremely bearish environments before and that didn't stop a rebound from happening. Not once. There is not a solitary exception. Even in the deep throes of the financial crisis, we still saw retracements.

Moving on...so here are the points to consider. First, the bears were only able push Apple to an incremental new low even after the worst possible news was announced. Remember, Apple hit $146.50 on Christmas Eve, rebounded to $159 and then made an incremental new low of -4 points total on the ensuing leg lower. That is a HUGE deal and it's why I'm posting it first. It is an indication that the momentum is shifting to the buy side. Whenever a stock makes only incremental new highs on an uptrend or incremental new lows on a downtrend, it is an indication of a trend-change. Eventually, what you get is a higher low and then that's that. The trend shifts.

Second, not to beat a dead horse, but there has NEVER been an exception to the bear market rally rule. In fact, even on a micro-level, every time you ever seen a sharp move down, you get a rebound right after. Look at any intraday chart, hourly chart, daily chart or weekly chart. Anytime there is a sharp move down, the next thing to happen is a retracement. That's because the market always overcorrects on the way down and overshoots on the way up. So the push down to $142, may very well be an overshoot.

So I'm not ready to throw in the towel here on a well establish long-term trend. In the last TWENTY (20) major legs down, Apple has rebound in all TWENTY (20). No exceptions. And in all previous 20 cases, Apple retraced at least 38% of the losses. In fact, that was the minority of the time. In the overwhelming majority of the cases, Apple retraced 50% of the losses on the ensuing rebound. A 38% retracement still places Apple at $180 believe it or not. A 50% retirement to $190. I doubt Apple rebounds to either given the nature of the news. But it could very well rebound to $170.

Third, there are no exceptions to the 30-RSI rule. In fact, there has only ever been 1 instance where had a person bought at a 30-RSI, they would be negative after the rebound concluded. Think about that. There was only ever ONCE previous case where if you had bought the stock at a 30-RSI, you would be underwater after the ensuing rebound concluded. Apple hit a 30-RSI at $186! Chance are this will be the second case. But still, there are no previous cases where Apple didn't rebound at least 10% after hitting a 30-RSI. And there is only one instance where Apple rallied less than 20% after reaching a 20-RSI -- and in that case Apple rebounds 17.6% and retraced 50% of its losses.

Fourth, Apple is still oversold on the weekly chart. The last time it went oversold on the weekly was during the financial crisis. You have to go back that far to find weekly oversold conditions.

Fifth, Apple has hit 2013 crisis level distances below its 50 and 200-day moving averages. The last time we were this low was during the 2013 crash. Take a look below:

Now what will be important here is for Apple to actually push through the $150 level. A short-term move above $150 up to $151 or something isn't good enough. We need to see a real push into the $150's. If we get that, Apple can approach its pre guidance cut highs. And if we get there, Apple has the potential to produce a higher high and that's when we get our final breakout run to $170. If Apple can get up to $170 by early-to-mid February, we should be able to sell our March call-spread at a more reasonable price and then go short for the sell-off back down to the $140 lows. In fact, the at $170, we could buy the $160-$150 put-spread and hold that to expiration. That's because there the probability will be high that Apple falls to or under $140 and holds there for a good long while. That will allow us to fully capitalize on the spread. If we can buy at $3.00, we would be able to sell that at $10. But again, what we need here is a decisive breakout of $150. That's the first step in establishing a bear market rally.


BotTrigger Trade Alert Change: We are adjusting our limit order that was set on December 27th for the $AAPL June 2020 $210 / $230 call-spread @ $2.50 to the January 2021 $210 / $230 call-spread @ $2.50. Again, this is a GTC (good till cancelled) Limit Order.

MAX GAIN = $20 which is a 700% gain so long as AAPl closes @ $230 or higher upon expiration which is January 15th of 2021 (743 days away from today)

BREAKEVEN = AAPL closing @ $202.50 upon expiration = not a solitary dime is lost nor gained

MAX LOSS = AAPL' share price closing @ $200 or < less than = max loss to a $0.00 value (whatever invested on this trade would be worth $0 if AAPL closed below $200 "UPON" (keyword) expiration

The company said in a filing released after market close Wednesday that it now sees first quarter revenue of about $84 billion, from $89 billion to $91 billion anticipated previously.

Yesterday, Wednesday Jan 2, 2018, Apple lowered guidance for the first time in history, causing a stock halt in after hours as AAPL's share price hit an incremental new low of $144.51 which is now a -38.10% pullback from peak to trough. Remember, 2012 saw a -44% bear raid on AAPL, bottomed out and then rallied 144% from the lows of 2013 to the top of 2015 where AAPL once again began it's next bear raid cycle correcting this time by -34% before bottoming out... and then went on to it's most recent all time high of $233.47 for a 156% rally since bottoming out in summer of 2016.

My point is this: either way...the upside risk far outweighs the downside risk with AAPL already having pulled back as low as -38% on this bear cycle...and is more close to nearing the bottom of this bear cycle. Yes we may see some further downside pressure but I'd say at most it's about another -8 to -12% downside possibility in this range. AAPL's last major pivot high was the top of the hill of AAPL's all time high back in 2015 which is $134.54. With AAPL already hitting as low as $144.51 as of yesterday in after hours,we're now not that far from tagging that last pivot high.

Just understand it's going to be a while before a formidable bottoming pattern will flesh itself out. AAPL isn't just going to bottom out and then pull a "V" like recovery to it's ATH (all time high) anytime soon. You can forget about seeing $230 anytime this first half of the year almost assuredly. Instead, we want to start planning for the the next bull cycle because in time, this too shall pass. I'm not interested in where the stock is heading tomorrow or next month bur far more interested in the bigger opportunity to position the folio to capitalize on the next bull cycle where we see AAPL take off on a monster multi quarter rally to reclaim & eclipse it's $230 highs. I'm very confident we'll see AAPL trade far north of $230-$250 sometime by if not before January 2021...like that's an easy bet. But I'm not so confident that we see that happen anytime this year at this point. Right now we need to focus on the recovery.

Quite frankly... AAPL revising it's guidance like this ahead of earnings is unprecedented. They've literally never done this before. We find this conveniently timed to perhaps shakeout further weakness for the benefit of AAPL's $100 billion stock repurchase program which is scheduled to complete before Q4 Earnings come out sometime within the next ~30 days. Within the first 6 months in 2018 AAPL repurchased $43.5 billion of its own stock. Not only is that up from more than $14 billion during the same period last year, but the company’s repurchases in the past 4 quarters also rank as the biggest in history. So far as has been reported, we know that $43.5 billion has been deployed in Apple's stock repurchase program within the first 6 months of 2018 which equates to roughly 5.5% of their outstanding shares being taken off the market....that leaves AAPL to accumulate the remaining $56.5 billion of outstanding shares from July to the close of Q4 earnings which will take place sometime within the next ~ 30 sum days. We said this several times before, AAPL is not stupid - they're not going to be buying their stock at all time highs up in the $230 zone after a +150% rally has ensued. AAPL very strategically, along with their contracted brokers do this buying at extreme discount lows. If you're intent is to buy as much of the stock at the lowest possible range, do not doubt the collusional forces in play to foment their own raid. Note* the bearish thesis that caused this correctional period is valid, it's not without it's merrit. As we very explicitly discussed on our AAPL short thesis post, YOY comps for 2019 wouldn't hold a candle to 2018 comps...which has always been the case after the new form factor phone is released...it's always the S-Cycle iteration iPhone model the following year where YOY comps see flat to negative growth. Wall street began pricing flat to negative 2019 YOY comps very quickly this round and this is the steepest pullback I've seen on AAPL that's occurred, being down -38% in just 3 months time. That's a record.

This is the first time I've ever seen Apple revise its guidance up or down ahead of earnings. This is exactly why the Steve Jobs model of setting expectations low and over delivering is a better model overall. It means you never have to revise guidance. Because it would have been better for Apple to just report a miss than to lower guidance. Especially in this environment and as the stock is potentially rebounding. But again, that's why I find this need to make such an announcement 30 sum days ahead of earnings conveniently suspicious. If a handful of us were on the board, it's not beyond us for humans (especially of the corporate skin) to think in a similar strategic manner: get the bleeding over ASAP & whilst we get the chance to initiate the remaining tranche of our stock repurchase program at extreme lows. Like that scenario is all together possible. But that's neither here nor day. Your mettle here is being tested, will you rise to the occasion and take advantage of it or stare at the head lights like a frozen deer. Make no mistake about it, we're going to exploit this opportunity.


BotTrigger Trade Alert: $AAPL bought the June 2020 $210 / $230 Vertical Call Spread @ $2.75 & we're also placing a GTC (Good till cancel) limit order to buy this same position @ $2.50).

AAPL has now corrected -37.21% from it's all time high of $230 to the recent trough low of $146.59. The depth of this pullback is in line with historical precedent akin to the 2012 Bear correction period where AAPL pulled back -44% & the 2015 Bear correction where AAPL pulled back -33%. AAPL's PE ratio is now trading at a book value of 12.93 PE which is also in the prime area where bottoms start to take place. The PE ratio low of 2015-2016 Bear period was 10.04. The point here is, there is far more upside risk than downside risk at this point. The forecasting model shown in the image is a conservative view of what AAPL typically looks like after such a steep sell off...AAPL could just as easily reclaim it's all time high mid 2019 instead of mid 2020...but we're going to model this trade and assume that AAPL's recovery period "may" take as long as the 2015 - 2016 correction....if it indeed followed in similar path as the last bear market period than we're conservatively forecasting a retest of AAPL's $230 all time highs some time by mid to late 2020. Positions taken.

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.”