Use access key #2 to skip to page content.

TheDumbMoney (67.22)

“Trader Arbitrage” and an Actual Apple Valuation Analysis



April 17, 2012 – Comments (11) | RELATED TICKERS: AAPL

I have been holding Apple stock since mid-ish 2011. I bought “late”, in the $350 to $365 range. I bought because my analysis showed a twenty percent discount to this model's (the linked chart has since been updated — see below) estimate of the value of the firm. I have not added shares since then. I have watched the recent rise with amusement, happiness, and some trepidation. I have also avidly followed how the technical guys, the traders, think about it.* (I generally find them amusing, and I am grateful as a citizen for all of the capital gains taxes they pay each year in exchange for their unceasing and frenetic efforts.)

The setup. I think the parabolic move upwards to $640 was driven both by fundamentals and by technicals. To some extent, all multiple expansions are a technical phenomena, no matter the fundamental component. And it’s clear to me right now that Apple as it swoons is in the hands of these technical traders, these chartists, the algorithms. No substantive news is driving this, I think. These guys (they’re typically guys it seems) have followed and exacerbated that move up. And now that it blew back through $600 on the downside there is blood in the water.

And it’s not just solo guys, however professional. The stock has been a favorite of hedge funds, too: everyone has/had to own it. Billions of dollars, controlled by charting/technical algorithms written by former electrical engineering and physics majors and professors, trade according to such charting schemes. They don’t care that Apple has a 10ish forward P/E. They don’t care that it has a super low PEG. They don’t care about recent revenue growth. They don’t care about free cash flow (more on that below). They. Don’t. Care. Here’s what they care about: price targets based on what the charts say. Now $553 is a major target for these folks. The most aggressive of them quote the history of retracements of parabolic moves and say it will go back to $430.

Thus I hereby inaugurate the concept of “Trader Arbitrage.....”

For the rest, see here


Note that this was originally posted last night.

11 Comments – Post Your Own

#1) On April 17, 2012 at 12:14 PM, TheDumbMoney (67.22) wrote:

Going up today.  A buy at least up to $650/share.

Report this comment
#2) On April 17, 2012 at 6:54 PM, Frankydontfailme (29.43) wrote:


Report this comment
#3) On April 17, 2012 at 6:54 PM, Frankydontfailme (29.43) wrote:

talk to me at 475

Report this comment
#4) On April 17, 2012 at 7:55 PM, TheDumbMoney (67.22) wrote:

You got it, Franky, will do!


Report this comment
#5) On April 19, 2012 at 3:15 PM, TheDumbMoney (67.22) wrote:

Limit order in place for an 1/5 add at $570.

Report this comment
#6) On April 20, 2012 at 6:20 PM, Frankydontfailme (29.43) wrote:

DONT DO IT TDM. Seriously... wait for 400's. There's no reason to buy a stock when it's going down, regardless of your time frame.

 I know you're more of a fundamental guy and that's ok, but waiting for a stock to settle and cross its 30 wk movin average to the upside is going to make a big difference for your wallet. Why not not wait for the all clear? Seriously, if its way undervalued and worth buying because it can go way higher then you can buy it at 645... small change from 570. If I'm not wrong though, you're risking 15%. But what if it's not waaay undervalued? What if it's really expensive because earnings are a mirage and vz and t refuse to subsidize it blah blah blah. What if it corrects to 225? To be honest I doubt it.... I'll look to buy once it stabilizes in the 400's so it can launch into the thousands, but it's all about risk reward.

Sorry for a rant, but this a response to your anti-technical blurb. The most expensive mistake you can make in the market is to COMPLETELY ignore technicals. 

I highly recommend this book:'s%20Secrets%20For%20Profiting%20in%20Bull%20and%20Bear%20Markets/

Or if you're not cheap here's the amazon version: 

Report this comment
#7) On April 20, 2012 at 6:44 PM, TheDumbMoney (67.22) wrote:

Well, I don't *know* anything about where it is going, first of all!  :-) 

$570 is my first buy point.  To be honest, I think it's more likely that it never hits that on Monday, and then it pops on earnings.  But I won't blow my wad at $570.  I'll nibble, and then set another buy point, maybe around $500 or so, always keeping my eye on events.  And I'll take a look at the Weinstein book.

My view on Apple continues to be that the stock is treading water and falling a bit because there is an information vaccuum, and also people are just freaked out by the amount it has gone up.  Apple will probably match the more optimistic of earnings on Tuesday, and if not, so be it, I still think it has great prospects and I'll add more after any major gap down.  But Apple has earned the benefit of the doubt from me for now.

But I appreciate your concern!  :-)  Have a nice weekend.

Report this comment
#8) On April 21, 2012 at 5:01 PM, TheDumbMoney (67.22) wrote:

Congratulations, Franky, you managed to change my mind about something.  :-)   I thought about it some more and realized I was violating one of my rules, which is never buy a buy-and-hold stock right before earnings.  So I have taken off the limit order.

Report this comment
#9) On April 24, 2012 at 6:10 PM, TheDumbMoney (67.22) wrote:

I actually violated my rules on this after all, could not help it.  I added on 4/23 at $577/share.  I'm happing I'm making money, but not happy I violated my rule.  I just decided I was so confident about my valuation analysis that it didn't matter.  But I failed to post this before earnings today, so it doesn't really count.

Report this comment
#10) On April 24, 2012 at 6:15 PM, Frankydontfailme (29.43) wrote:

lol, I believe you. I don't think it's out of the woods yet, it has to rally with strength (volume) back above 620 and stick for a closing. Otherwise it will drift lower. Many bears expected a beat and covered shorts before earnings... you'll notice I removed my thumbs down yesterday( planning to short after earnings orgy... we'll see if I have the conviction).

Frankly, if it blows past 640 and moves to 800 or whatever it will be long term AWFUL for the stock. It needs to correct. And it will. The question is, was I early (again?)

Report this comment
#11) On April 30, 2012 at 7:08 PM, Frankydontfailme (29.43) wrote:

Starting to feel like 375 is more realistic than 475.

Report this comment

Featured Broker Partners