Chart of the Day – The Big $AAPL

The Apple of My Eye?  For years, AAPL was indeed THE favored stock in this market, so much so that some pundits even called the broader market the NBA – Nothing But Apple.  That has not been the case for the past 9 months, but few could have imagined the velocity of the descent for AAPL in that time.  But for the first time in many months, there are signs of optimism.  Are those signs justified?

First, AAPL shares are finally trading convincingly above their 50 day moving average, which has not happened since early October.
1 year daily chart of AAPL, Courtesy of Bloomberg

1 year daily chart of AAPL, Courtesy of Bloomberg

Secondly, AAPL has rapidly increased its return of cash to shareholders, increasing its dividend to a quarterly $3.05 (about 2.65% yield at the current stock priced), and instituting the largest single share buyback program in the history of the stock market.  Thirdly, the stock has changed ownership, moving out of the hands of growth investors and into the hands of value investors, representing a significant shift in the underlying ownership psychology.
All 3 of those factors represent the first stage of a longer-term healing process for AAPL shares.  That’s the crucial point though – after such a steep decline, AAPL’s bottom is more likely to be a process rather than a one-time event.  In other words, I don’t expect a rally right back to above $500 in the coming months.  Rather, I expect the stock to be rangebound between $400 and $500 until the fall, at which point the 2014 growth catalysts start to look more interesting.
An innovative new product line (possibly including the long-awaited Apple TV?) could be the spark to get the shares moving higher again later this year.  But for AAPL stock to regain its mojo, innovation is now the key.  In the meantime, I don’t expect AAPL to make any major moves higher or lower, as traders arrange their bets ahead of the next product cycle.
We still have an in the money call fly that we put on prior to earnings to take advantage of a range to the upside. It’s working well but we’re keeping a close eye on it for a good exit point.