Diary of a Financier

Update: The Apple analogue

In Capital Markets on Mon 27 Jan 2014 at 13:51

I haven’t updated the Apple ($AAPL) analogue since 9/2013, after which my expectation was [delightfully] disproved.  As noted when I caught whiff of the bull reversal, we held our AAPL position for a subsequent breakout, and we now enjoy an ~30% unrealized gain.

In terms of background, AAPL reported 2014fq1 earnings (financials & details) this evening, beating on the top and bottom lines, not to mention beating on its all-important gross margin number.  Regardless, the stock traded down >8% @ $504 AH (as of print) on underwhelming iPhone sales volumes, forward guidance, and news of iPhone 5s supply shortages.

AAPL trades at a 9x PE (ex-cash), so I’m not that worried about its fundamentals or valuation, as I’ve said before.  These undulations are just the psychological spasms of a crowd–irrational agents, to be sure.  To handicap such psychology, I turn to the technicals.

To wit, Green Mountain Coffee Roasters ($GMCR) has proven a reliable analogue for AAPL.  GMCR was a momentum boom/bust darling whose collapse arrived exactly 1 year before AAPL’s (9/2011 vs 9/2012).  In brilliant symmetry, AAPL has followed GMCR’s precedent of retracing its drawdown back up to former highs–the former naturally lagging the latter’s progress by that requisite 1 year.

With AAPL gapping-down overnight here, I took the opportunity to recalibrate the comparison between these two.  Using signals from each chart’s price pattern, indicators, and divergences, I find that AAPL’s downside should be ephemeral here, lasting a few days at most before resuming its hike to new 52-week highs.  Thereafter, a significant bear market drawdown should occur, to the tune of ~34.5%, before another bull reversal:

AAPL v GMCR daily

AAPL v GMCR daily

As always, longer term fractals help me focus on the bigger picture.  In the weekly comparison, I’m reminded not to get too greedy with our AAPL long.  I plan on taking gains at new highs, obviously before that bear market begins:

AAPL v GMCR weekly

AAPL v GMCR weekly

–Romeo

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