TradingWithCody Chief Counselor, Elad Ryba: Apple, downtrends and valuations
Apple has, as we all know, been a painful stock to own, look at and discuss.
Seven short (or rather seven long) months ago it was the toast of the town, best performer in our portfolio and something to be cherished.
Yet taking a look back you can see that something happened on Oct 5th 2012. It fell below its 50 day moving avg at around $660 and since then has never regained the upper hand above that line.
Sure, it could have regained it days later or maybe week later, but it didn’t. It kept declining. What has taken place since then is a gut wrenching lesson. We need to learn to make our money work for us vs. working against us. We need to protect capital and as much as we are investing for the future we need to examine what’s going on now. If we always have to work from behind and make up for losses we can never get our accounts to stay at new highs and propel them to greater levels.
Does a stock stabilize after declining below its 50 day moving avg? Apple never stabilized and turned higher. It just kept falling now nearing a 45% decline. If you sell some or all of your position after a stock falls below its 50 day moving avg you can always buy it back if it regains the uptrend. The reverse of that is a stock stuck in an abyss of a decline and whose downside is unknown.
Yes it makes no sense for Apple, which is growing 10-20% a year, to trade at a PE of single digits, less than the PE of a GE, MSFT, INTC, etc. etc.
I often view a stock as being just an instrument of investment you want to get on board in a clearly defined uptrend is in place. At times it corrects and pulls back that why Cody tries to instill in us to sell the rips and buy the dips. Don’t sell all at once on rips and don’t buy back all at once on dips.
Let’s continue using the TradingwithCody forum to examine what’s in front of us, examine a stocks fundamentals but always stay acutely aware of what the market is telling us about a certain company’s stock. It’s great to buy a new position that’s unloved and could advance higher and put some cash to work. Using tranches is the key as small positions can’t hurt you and if they gain upside like, say Apple did from $7 when Cody first bought it, we can add to that holding. That is not the issue I am talking about here though. I am trying to address having as large a position as Apple had become at $705 to then decline and break certain lines in the sand without selling some and rethinking ones large exposure. Sometimes, it can be wiser to take the side of securing ones account and being cautious by selling.
Apple may have a bright future ahead of it as its sitting on so much cash that’s its options are limitless with a supposed bevy of new products in the pipeline. However great that potential is, the fact remains we can always invest in a stocks future when the market clearly knows those decisions and tells us positive things are about to start, beginning with an uptrend vs. following a downtrend that can last much longer than any company fundamentals would seem to indicate that could.
The market seems to be undergoing a character change, let’s play it safe and see where it wants to go. The market is bouncing a bit this morning and it is going to be a good test to see what sort of juice the dip-buyers have. Investor’s Business Daily has moved its market view to “correction” and advises great caution, similar to what we have seen the past few years as we approach May the “correction” month. Is this April correction so far front running that May correction IBD warns about? Let’s see what the market tells us.
