By now, we all know that reports of iPhone production cuts have put the whammy on not only Apple (AAPL - Get Report) , but a bevy of semiconductor names as well. The news on Monday was that Apple had cut intended production for all three current models, and according to the Wall Street Journal, had cut orders for the iPhone XR twice just in October. The headline stock led the Monday retreat for the tech sector and for the major indices as well. Yes, I am still long Apple. Yes, the company did sort of signal this in the earnings call when the announcement came down that the firm would no longer provide unit sales figures for hardware sales. They also did guide the revenue range for the current quarter slightly lower.
On the bright side, there has often been negative news around new launches. In addition the firm is driving an ever increasing portion of it's revenue through the sale of subscription services, and that is a significant positive. Not every analyst has yet weighed in, and the drumbeat of negativity had started earlier this year. My thoughts on Apple are the following. I do still want to own the greatest consumer electronics company (perhaps the greatest company) of all-time. I would bless a sale for an investor that may have allowed him or herself to become overly exposed to this name. One thing that I think investors of this era do need to improve on is balancing a portfolio. The skew in recent years has been toward growth, and younger investors may have misinterpreted the group's past performance as offering a perception of safety. Again, this can be blamed directly on perverse monetary policy.
On a year to date chart, the $180 panic point that I had given you a few weeks ago is still the story. For me that level is probably an add. Yesterday, the lower low for the equity coupled with a higher low for Relative Strength could technically provide for today's trade a bullish divergence. From my perch at zero-dark thirty, the stock is still trading lower, but we'll see how this all shakes out soon enough.
Now step back. The overhead view is more comforting. It would appear that trends going back three years may be unbroken. While a Pitchfork model covering that time frame does indeed show signs of being under pressure in recent days, a Raff Regression model contains the volatility over that time frame quite comfortably. Keep in mind, this stock is relatively cheap at 12 times forward looking earnings.
Target Price: $230 (down from $255)
Panic Point: $180 (re-iteration)
Wall Street Average Target: $238 (according to TipRanks)
Long And Wrong?
Apple will report Q1 earnings results on January 30th. Why not write a January 18th $200 call against your holdings. At one contract sold per 100 shares held, this puppy will still knock more than four bucks off of a trader's net basis. The risk associated? The trader has to sell the shares at $200 in two months. Worse things have happened to much better people. Sell puts? Not in this environment, Tex.
(A longer version of this column appeared at 8:36 a.m. ET on Real Money, our premium site for active traders. Click here to get great columns like this from Stephen "Sarge" Guilfoyle, Jim Cramer and other experts throughout the market day.)