Is Apple Stock (Nasdaq: AAPL) the Short of a Lifetime or the New Widow Maker?

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I have a confession to make.

I believe Apple stock (Nasdaq: AAPL) is going to be world's first trillion-dollar company yet I want to short the snot out of it.

Am I being compulsive?…impulsive?….or foolish?

Perhaps it is all three considering that Apple has risen more than 3,000% in the last ten years, turning almost any attempt to go against the grain into a "widow maker" trade.

I say almost because I am one of the lucky ones.

A few weeks ago I recommended my Strike Force subscribers purchase put options on Apple, effectively shorting the stock. That resulted in a 47% profit in less than 24 hours for anyone who followed along, excluding fees and commissions.

I'm not alone in my thinking.

Uber investor Doug Kass, general partner of Seabreeze Partners Long/Short LP and Seabreeze Partners Long/Short Offshore LP, tweeted recently that he had covered "half his short" on Apple following the announcement of their dividend and buyback plan.

Given that the stock had run up to nearly $608 a share before the announcement, presumably Kass had banked some gains, too.

7 Reasons to Short Apple Stock
(Nasdaq: AAPL)

I haven't spoken with Mr. Kass so I can't comment on his current thinking nor the specifics of his trade, but here are mine:

  1. The company has single-handedly repeated the bubble curve of the Nasdaq run up. That leaves a lot of empty space to the downside.
  2. AAPL Nasdaq chart

  3. Apple is a "fad" or a "hit" company, meaning that its price seems to correlate to new product launches rather than the sustainable development of key product lines. Companies that do that tend to fall back from orbit at some point – especially in the tech world. Palm and Research in Motion (Nasdaq: RIMM) are two that come to mind.
  4. When great leaders are gone, their legacies can struggle. While Apple has stood up so far following Steve Jobs' unfortunate death, I can only wonder, as many in the tech community are wondering, how deep and how far out his thinking will live on. Is it one product cycle, two cycles? Nobody knows. But we do know that Microsoft (Nasdaq: MSFT) became a very different company after Bill Gates stepped aside. Intel (Nasdaq: INTC) also flatlined three or four cycles after Andy Grove's departure from day-to-day operations.
  5. Apple's short interest of only 9.8 million shares is very low considering the company's three-month average daily trading volume is 18.2 million shares and the company's float is 931.8 million shares.
  6. The analyst community is almost completely positive. That's usually a sign of two things: a) that they're soft peddling opposing trades from other parts of the "shops" they work for or b) that they want a run up to maximize profits from positions they already hold. Either way, many have been tremendously wrong in their sales projections in recent quarters, understating anticipated results by as much as 30%-40% – a factor also noted by Kass in his trade set up analysis. Therefore, I am skeptical that they are raising numbers again.
  7. Apple's profit margins are unbelievably high at a time when the rest of the economy lurches along. While that's not a bad thing in isolation, I have a hard time believing that Apple can remain so far out of line if for no other reason that what goes up must come down eventually. And, since the road higher is far more unlikely for the rest of the markets, it is logical that Apple likely heads lower in the short term.
  8. Apple's fundamentals may soften. There are lots of reasons to love Apple but there are just as many reasons things may not be what they seem. If the economy worsens just how many people are going to buy "gee-whiz" technology beyond the hard core Apple-heads? Is there an Apple-killer in somebody's garage right now? Anti-trust investigations and supply problems are also big what ifs at the moment. Even a carrier failure could rock Apple because it may be their subsidies that keep Apple's costs down and profits high.

Add it all up and there is enough to make you go hmmm…

Of course, there is no doubt I will incur the wrath of Apple fans everywhere and arm chair traders from here to Tibet.

Get over it guys; please refrain from the snarky e-mails telling me I'm an idiot or out of touch or worse – I believe in Apple. I really do.

What I am suggesting is simply the logic behind Apple as a trading opportunity for nimble, aggressive and like minded market mavens.

Besides, if I am correct and Apple does trade lower in the weeks ahead, I'm going to be picking up shares as an investment.

I hope you will be buying too.

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About the Author

Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs The Geiger Index, a reliable, emotion-free guide to making big money and avoiding losses, and Strike Force, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.

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  1. Ryan | March 27, 2012

    Seriously?
    You took two graphs and tried to match them; not by any fundamentals.
    Just because you got lucky shorting a stock with solid fundamentals, I wouldnt be bragging about it; I'd wager youve lost many times guessing.
    Isnt this article old anyways? Why are you republishing it?
    Why are you comparing Apple to Rim? Not even close to the same company. Ridiculous.
    So Apples trailing earnings will be $40+ after next earnings release and you think its a good idea to suggest it will fall? So people will then short and lose?
    Completely Ridiculous.
    Yeah it may fall but your guessing on nothing but rhetoric.

  2. King Ralph | March 27, 2012

    It's very risky shorting a stock in a powerful uptrend that is breaking out to new highs in an uptrending market. Right now it's flagging and looks like it could go higher. Better to wait for a downtrend to start.

  3. Bad Reporting | March 27, 2012

    You have a misleading graph comparing AAPL to the bubble. The fact is, AAPL's trailing P/E is 17+, whereas firms like CSCO had it well into the hundreds. You call that a bubble.

  4. H Craig Bradley | March 27, 2012

    Smart investors know that its risky to be first to the party. Better wait a bit and see which parties (stocks/sectors) are doing the best (most fun)- then join the party. Remember, Keith is a trader who by nature follows short term trends, which can and do change in real time. If you are a long term investor it might pay to keep this fundamental difference in mind when reading here.

  5. Allan Sayson | March 28, 2012

    Apple is a product stock. Meaning they tend to rise by releasing products. Wonder what might happen to apple after the iphone 5 and itv releases. What?s the next hit?

  6. Russell Hammond | March 28, 2012

    If you want a very low risk way to short Apple you should short S&P500 futures against going long DJIA futures. When Apple took off on its, most recent, rally the 6 month aggregate performance of the S&P500 crossed, at that very point, against the DJIA.

    http://finance.yahoo.com/echarts?s=%5EGSPC#chart5:symbol=^gspc;range=6m;compare=^dji+aapl;indicator=ke_sd;charttype=line;crosshair=cross;ohlcvalues=0;logscale=on;source=undefined

    So, we know that the S&P and DJIA will always meet with one another at some point. By using this method of shorting Apple you're protecting getting it wrong as the two markets will converge at some point down the line.

  7. Bob | April 1, 2012

    I will not be going against the investment bank's high frequency trading computers. I will just sit back and wait for the inevitable crash and then consider buying. Maybe after the crash the SEC will wake up to the dangers of high frequency trading.

  8. Erik | April 2, 2012

    It's okay, you can say "April Fools!" now.

  9. david waters | April 13, 2012

    i havnt been day trading long this past week i am down 800 dollars on appl i might try to short it when i learn some on message board thinks it will be 450 bottom any reply be great thanks

  10. shirish saraiya | April 15, 2012

    good comment. i want adviser like you for buying & selling shars. i will your fees. THANKS

  11. Khalid | May 2, 2012

    I have been trading AAPL for a while now. I got alerted well before the volume started to pick up and because of this I was able to score a nice profit a few times. The report helped me understand the complete scenario and the pros and cons. It’s always best to buy before everyone else does. Check it out at vippennystocksite.com (Kindly, copy and paste the link in to your browser.)

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