The Mechanics of Apple's Next Slingshot

NEW YORK ( TheStreet) -- Apple's ( AAPL) summer/fall action is revealing itself.

The pre-earnings run has officially ended, which means we have a tight window of opportunity forming between July 23 and Oct. 23. Knowing when a run isn't going to happen is just as important as knowing when a run is going to happen.

Identifying this pre-earnings pause allowed us to sell a 15% allocation of Apple when the stock dipped below our momentum price point of $415 earlier Tuesday.

If the stock dips to less than $410 we'll sell the remaining 15% allocation.

Being 30% invested for a possible July rally was OK but far from our ideal "fully loaded" 60%-70% allocation that we will be able to employ during the three months of action between the earnings report and the fall launch of the new iPhone lineup.

Because of the tentative action ahead of the July 23 earnings report, the Street is severely underestimating the potential impact of a new iPhone lineup.

This sentiment is set to dramatically change in two weeks as the stock action will finally be free to begin its process of pricing in a fall bonanza. We caught a glimpse of this positive action during the recent run from $388 to $423. We expect to see much more as Apple emerges as the top play on Wall Street in the second half of 2013.

The new iPhone lineup represents the iPodification of Apple's most important business segment. When multiple colors and sizes of the iPod were released in 2004, they produced triple-digit hypergrowth.

A similar phenomenon could happen on a global scale in the aftermath of the fall launch. Speculation suggesting this budget iPhone will negatively impact Apple shares is absurd. As Morgan Stanley noted, the overall impact on Apple's gross margin will actually increase due to the shift in product mix. Apple watchers have put together a video of what the budget iPhone will look like and judging from the 500 comments, reviews are overwhelmingly positive. You can watch the video at Mac Rumors.

Raymond James analyst Travis McCourt is getting bullish on Apple, as Motley Fool reports, because of Apple's perfect position for the next big tech boom. We're also getting bullish on it.

At the October earnings report Apple performance will be compared to 40% gross margins and 26.9 million iPhone's sold. In January the numbers to beat are 38.6% gross margins and 47.8 million iPhone's. The introduction of a new lineup of iPhone's represents a critical tipping point for Apple because it sets the stage for a return to significant iPhone unit growth.

Not only will the new lineup appeal to global consumers looking for a 50% price cut on the iconic iPhone brand, but premium buyers are likely to take advantage of Apple's new trade-in program for the iWallet premium 5S model as well.

From a technical standpoint, Apple's current selloff has now outdone the famous Google ( GOOG) dip of 2010 when GOOG shares bottomed at $436 in late June.

By November 2010, GOOG was back to $625; the same thing can happen to Apple. Two out of the three months August/September/October are poised to be $100 performers. Over the last 18 months, seven months have produced intramonth moves in excess of $80. Thirteen of the 18 months have produced intramonth moves in excess of $50. Needless to say, this stock has been extremely volatile, with six months of positive action and seven months of negative action out of the 13. Here is a rundown of the most volatile months of action:

June 2013 AAPL: -$64

April 2013 AAPL -$58

January 2013 AAPL -$120

December 2012 AAPL -$93

November 2012 AAPL -$98

October 2012 AAPL -$94

September 2012 AAPL -$50

September 2012 AAPL +$50

August 2012 AAPL +$86

April 2012 AAPL +$58

March 2012 AAPL +$104

February 2012 AAPL +$101

January 2012 AAPL +$62

The moral of the story is that Apple is capable of producing exaggerated moves in both directions. This is especially true in the first few months of a new trend as observed in February/March 2012 to the upside and October/November/December/January 2013 to the downside. Sentiment is certainly capable of changing; it has before and it will again. July 23 is the next tipping point.

At the time of publication, the author was long AAPL.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Jason Schwarz is an option strategist for Lone Peak Asset Management in Westlake Village, Calif. He is also the founder of the popular investment newsletter available at Over the past few years, Schwarz has gained acclaim for his market calls on the price of oil, Bank of America, Apple, E*Trade, and his precision investing in S&P 500 option LEAPS. His book, The Alpha Hunter, is set to be released by McGraw Hill in December 2009.

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