Even when AAPL was moving up it was exceptionally clear the stock was in huge trouble.
Now it seems almost like a daily event of notable hedge fund managers taking HUGE losses and many because their #1 or in their top 5 was AAPL.
I want to say that I don't get it, but I do. Hedge Funds aren't much different than retail when it comes to the "sheep mentality". Several months ago it was only 11% of all hedge funds were outperforming the S&P, the last I heard it was only 8% and the reason why? If you are a fund manager/owner you are getting between 1.5 to 3% of AUM a year just for management, for a fund of $100 mn that's $1.5 to $3 million dollars a year. Then there's a performance fee usually of 20% of any money they make above the high water mark, so if they make 10% or $10 mn that year, another 20% of that is theirs- $2 mn and this isn't a huge fund at $100 mn, there are funds out there above a billion in AUM. Some funds even make 50% as an incentive fee so they get half of that 10% they made plus the yearly management fee, it's a good job, leave early on Fridays, lots of 3 and 4 day weekends, lots of money.
If you are a fund manager, you don't want to lose your clients, but more importantly you don't want to lose your job. This leads to the herding mentality, they all buy and sell the same stuff, that's why we can see it so clearly when they are really active.
Today, if you watch CNBC you know him, Whitney Tilson of T2 released his September 30th 13-F and guess what his top 2 positions were? AIG and AAPL. Remember when I said there are too many owners of AAPL all trying to fit through too small a door at once? It was only about 2 months ago.
In any case, with me saying today that an AAPL buy may be very close at hand, I think I should be clear about AAPL and what I see as probable and where I stand because it's not "Long AAPL", that's just an opportunity because something seems to be going on right now.
You may recall when Paulson's fund lost somewhere around 56% last year with his big position being BAC. Right as he finished selling his BAC position, BAC took off and nearly doubled in the next 2-3 months.
Any way, lets look at AAPL and see what the real problem is, where it is and where AAPL is likely headed.
First I like AAPL right now as a trade, it's not a position I or anyone has to take, there are ways for it to prove itself and if it does, then it may be worth taking for a trade, if it doesn't we just look for the next opportunity. In this post I explain why I like AAPL now and specifically NOW, meaning I think a position is probably very close.
Here's 1 chart that sums it up...
I made an argument for AAPL's 2012 parabolic move up and how these never seem to end well and how AAPL will likely see just as nasty a parabolic fall on the right side of the pattern which we already see. In fact I even went so far as to say there'd be a small "U" shape on the 5 day chart to the reversal.
On a daily chart, this is that "U" shape reversal that you see on the 5 day chart. At first this looked a lot like a complex H&S top with 2 left shoulders, a head and at least 1 right shoulder and I was hoping for a second, AAPL fell from there and this could be considered a Broadening top as well. The normal volatility shakeout after a break like this never came for one simple reason, the sellers were too desperate to get out anywhere they could and they are still trying to get out, but at this point a lot of them are going to need a bounce in AAPL so they can get out with something left to their hedge fund.
Below this 2 hour chart was one of many I showed you making the case this was a top, even volume analysis was used to verify the top.
The daily chart was used as well, this is a great example of the basics of 3C, price is higher yet 3C is lower, there's less money coming in to AAPL at a higher price than there was at a lower price. This tells us what underlying trade looks like, money is moving out.
Here we see at the red arrow the H&S top shown above, but that's not the real problem in AAPL, the real problem is around the yellow arrow.
On a daily chart, this is where the yellow arrow is. For the size of the uptrend in AAPL, this is the proper top formation meaning it is likely AAPL runs up to the $600+ level before making a bigger, stronger leg down.
On a weekly 3C chart we see a few large accumulation areas, again the start of the 2003 bull market is an area of huge accumulation, but here look where the divergence is and where the trouble really starts, in 2011 and 2012, there were a lot of AAPL longs over the years and since 2009 volume has dropped off badly, it takes a lot longer to get out of a big position now than it did pre-2007, this also should give you some idea of how bad the downside in AAPL is likely to be as this 5 day chart is leading negative.
I'm guessing the $350 area is the eventual target, but it wouldn't surprise me one bit if that was overshot on the downside as the market always swings way too far one way and then way too far the other. You think it can't happen? MSFT was trading over $150 and is now at $26.83!
So that' the game plan with AAPL.
One other note, when the FED finally withdraws their policy tools as they will have to at one point, the market may see an even bigger shock, just look at tech during 2000.
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