here's what some bears on aapl are saying:
peaked margins - their gross margin reached 36.9% in 6/07 and has since declined to 34.7% in 12/08. this trend should continue as pricing pressure will intensify going forward as the company aims to maintain its market share in a declining economic environment. asp's will simply decrease faster than cost of goods sold, thus negatively impacting the gross margin.
the iphone will cannibalize the ipod family - the iphone has successfully integrated the functionality of an ipod into a sleek smartphone and has effectively rendered a significant portion of the ipod product family obsolete. ever since the 6/07 introduction of the iphone, there has been a marked deceleration of unit sales of ipods on a year over year basis. this presents a serious problem, as ipods generated 28% of Apple’s total revenue in fy 08.
the stratospheric carrier subsidies are unsustainable - it is estimated that aapl receives approximately $450 from at and t wireless on the activation of an iphone 3GS as part of a carrier subsidy program. it is also estimated that aapl receives an average subsidy of ~$300 from its international carrier partners as well. these subsidies are well above average of what other vendors (even rimm) collect. after the introduction buzz of the iphone 3gs has worn off and the subsidy agreements expire, the wholesale asp of the iphone will likely take a significant step down.
here's what the bulls are saying:
the iphone ramp is in the early innings - with the iphone now available in 80+ countries (in-line with 81 in 3/09, 70 in 12/08, 51 in 9/08 and 6 in 6/08, the global ramp has just begun (recall rimm has over 400 carriers now). cumulative shipments of the iphone since its 6/07 inception now total 26.4 million units. (note: jobs on wednesday put iphone sales at 30 million).
they are the best positioned company in the technology sector - aapl continues to gain share across its major product lines (macbook notebooks, mac desktops, ipod digital music players, iphone smartphone and the itunes application). its business model is becoming stronger over time as well with continued penetration of international markets (the opposite of most of its competitors).
the bank of aapl - aapl generated $2.3bil in cash flow from operations in the 6/09 quarter and its cash hoard now stands at $31.1bil (or $34 per share) – the single largest in the technology industry. Only csco has a comparable cash balance to aapl when analyzing the leading technology companies' balance sheets. with aapl shares currently trading at ~$171, the cash balance represents ~20% of the market capitalization.
i've made no secret of where i come down in this debate. i think aapl is the undisputed growth name in tech, and i expect it to trade to about $200 by the end of 2009.
Thursday, September 10, 2009
Wednesday, September 9, 2009
Bulls Still Active; However My Stuff Got Killed Today As AAPL Options Sold Off = (The Stock Was Barely Down Though!)
We had some momentary weakness on news that AAPL's product conference wasn't all that exciting, but that only lasted for an hour or so before the buyers jumped in again during the final hour. It was another feast for the bulls who run roughshod over any bear who dares to challenge this uptrend. Breadth was very good at better than 2 to 1 even with metals and oil rolling over intraday.
What is particularly notable about the market action is how we have gone up in a straight line for four days in a row to challenge the highs after some pretty poor technical action. Such renewed vigor is not what the charts would tend to predict, but the zeal to be in this market is unabated.
Other than Jim Cramer, I don't see anyone who seems to like this market very much, which is part of the reason it keeps going. A lot of folks have taken the view that we are riding a flood of liquidity and since interest rates are practically zero the money is just going to keep flowing and drive this market.
It can be a real struggle to reconcile bearish fundamental opinions with this market that barely rests and the folks who are doing best are those who just don't over-think. The market is acting well and that is all that matters at the moment. If you can't embrace that fact, you are going to struggle.
We are back at some technical resistance at the highs for the year and that may mean we see some consolidation, but the bulls are still not showing any signs that they are ready to do any substantial selling....
What is particularly notable about the market action is how we have gone up in a straight line for four days in a row to challenge the highs after some pretty poor technical action. Such renewed vigor is not what the charts would tend to predict, but the zeal to be in this market is unabated.
Other than Jim Cramer, I don't see anyone who seems to like this market very much, which is part of the reason it keeps going. A lot of folks have taken the view that we are riding a flood of liquidity and since interest rates are practically zero the money is just going to keep flowing and drive this market.
It can be a real struggle to reconcile bearish fundamental opinions with this market that barely rests and the folks who are doing best are those who just don't over-think. The market is acting well and that is all that matters at the moment. If you can't embrace that fact, you are going to struggle.
We are back at some technical resistance at the highs for the year and that may mean we see some consolidation, but the bulls are still not showing any signs that they are ready to do any substantial selling....
Tuesday, September 8, 2009
The Market Holds Firm....
Once again, the market shows why the folks who are battling against it are so frustrated. After two days of light-volume gains last week, we gapped up this morning. That would technically create a good spot for some profit-taking, but the bulls barely budged. We had a brief dip after the open but held steady the rest of the day and ended up closing near the highs of the day.
What has been so tricky about this market since March is that these low-volume recoveries after a breakdown have had a habit of continuing. Typically, the higher-percentage bet is that the market will roll over again after a low-volume bounce rather than continue to uptrend. This market has consistently broken that rule, and that has accentuated the upside persistence, because shorts end up being squeezed, and underinvested longs get frustrated and chase things higher.
The bottom line is that we have a market that just doesn't roll over easily even though there are plenty of reasons, both fundamental and technical, why it should. There is no shortage of folks who are rooting for some weakness in this market, and that is probably one of the reasons we don't pull back. The main thing to keep in mind is that until the price action shows some weakness, we better be careful about betting against the bulls....
What has been so tricky about this market since March is that these low-volume recoveries after a breakdown have had a habit of continuing. Typically, the higher-percentage bet is that the market will roll over again after a low-volume bounce rather than continue to uptrend. This market has consistently broken that rule, and that has accentuated the upside persistence, because shorts end up being squeezed, and underinvested longs get frustrated and chase things higher.
The bottom line is that we have a market that just doesn't roll over easily even though there are plenty of reasons, both fundamental and technical, why it should. There is no shortage of folks who are rooting for some weakness in this market, and that is probably one of the reasons we don't pull back. The main thing to keep in mind is that until the price action shows some weakness, we better be careful about betting against the bulls....
Friday, September 4, 2009
Good Day Today, But What Does Next Week Hold In Store For Us?
While the price action today was very good, the trading is thin, and I'm not finding much I want to do. Many in fact are inclined to sell into this strength.
What I found most interesting today was how, even with this upbeat action, there seems to be an extremely high level of skepticism. Certainly, some market participants are playing along, but I hear from so many that just can't reconcile this positive-acting market with their personal feelings about the economy. The majority seem to think that we have overshot to the upside and that it is just a matter of time before we have a severe correction. Even the bulls, many of whom are anxious to add long exposure, seem to have very modest views about how the economy is going to perform in the months ahead.
This disconnection between Main Street and Wall Street has existed for quite a while, but it strikes me that the tension between the two viewpoints is becoming more pronounced. At some point, the gap between the views is going to close. Most people seem to think that the only logical way for that to happen is via a market correction rather than increased optimism on Main Street.
I tend not to agree with that thinking; what I've found over the years is that one can't argue too much with Wall Street. Wall Street just doesn't care about logic. All those problems out there - if there are any or if they're as severe as feared - aren't going to matter until they do, and the more certain we are that the market is going to fall apart, the longer it is likely to do the opposite....
What I found most interesting today was how, even with this upbeat action, there seems to be an extremely high level of skepticism. Certainly, some market participants are playing along, but I hear from so many that just can't reconcile this positive-acting market with their personal feelings about the economy. The majority seem to think that we have overshot to the upside and that it is just a matter of time before we have a severe correction. Even the bulls, many of whom are anxious to add long exposure, seem to have very modest views about how the economy is going to perform in the months ahead.
This disconnection between Main Street and Wall Street has existed for quite a while, but it strikes me that the tension between the two viewpoints is becoming more pronounced. At some point, the gap between the views is going to close. Most people seem to think that the only logical way for that to happen is via a market correction rather than increased optimism on Main Street.
I tend not to agree with that thinking; what I've found over the years is that one can't argue too much with Wall Street. Wall Street just doesn't care about logic. All those problems out there - if there are any or if they're as severe as feared - aren't going to matter until they do, and the more certain we are that the market is going to fall apart, the longer it is likely to do the opposite....
Thursday, September 3, 2009
Perked Up A Bit Late In The Day
The bulls woke up a bit this afternoon and finally got a few things moving. We even had one of those last-hour spikes that we saw so often when the market was hot. Volume was a bit light, and it wasn't one of those really crazy last-hour spikes, but nonetheless, it was a decent little move and was a good illustration of the "don't short a dull market" action that many have talked about...
I probably don't have to tell you that the stars of the day again were gold-mining stocks. We have a huge two-day move in gold on very heavy volume. The move appears to be mostly technically driven, with hot-money momentum players chasing things up. There is no clear fundamental reason to explain the strength, which may actually be working in favor of the bulls.
Retailers did very well also, and by the end of the day breadth had moved to a very solid 4,150 gainers to 1,550 decliners. It is starting to look like typical holiday trading, but all eyes will be on the jobs report tomorrow morning. We have had a sell-the-news reaction to our last couple good economic reports, and I think the bears will try it again if we have a gap-up move on good numbers. More about that tomorrow, but I suspect we will see some whipsaws on the news....
I probably don't have to tell you that the stars of the day again were gold-mining stocks. We have a huge two-day move in gold on very heavy volume. The move appears to be mostly technically driven, with hot-money momentum players chasing things up. There is no clear fundamental reason to explain the strength, which may actually be working in favor of the bulls.
Retailers did very well also, and by the end of the day breadth had moved to a very solid 4,150 gainers to 1,550 decliners. It is starting to look like typical holiday trading, but all eyes will be on the jobs report tomorrow morning. We have had a sell-the-news reaction to our last couple good economic reports, and I think the bears will try it again if we have a gap-up move on good numbers. More about that tomorrow, but I suspect we will see some whipsaws on the news....
Wednesday, September 2, 2009
The Dip Buyers Must Be In A Coma This Week....
Although the indices hardly moved today, it was a troubling day for the bulls. After the intense selling on Tuesday, we should have seen more aggressive dip-buying and/or a bigger reflexive bounce. What we had instead was a most meager dead-cat bounce. All the buyers were able to do was hold us steady. After months of squeezing the shorts just as they started to gain an edge, the dip-buyers had no juice today.
In addition to the lack of bounce, we had a sudden rampage of buying in gold stocks. You have to ponder whether a sudden rush for a tradition safe harbor is something more than just momentum traders lighting up the sector for a day or two. It is quite easy to read something dire into that action.
The good news is that volume was light and there seems to be a high level of disinterest rather than outright aversion. Things still look rather precarious but as I've been writing we have yet to do any really serious technical damage. That doesn't mean we shouldn't be cautious but I am still looking for the bulls to get a little upside move here soon, especially with important jobs numbers coming up on Friday.
In addition to the lack of bounce, we had a sudden rampage of buying in gold stocks. You have to ponder whether a sudden rush for a tradition safe harbor is something more than just momentum traders lighting up the sector for a day or two. It is quite easy to read something dire into that action.
The good news is that volume was light and there seems to be a high level of disinterest rather than outright aversion. Things still look rather precarious but as I've been writing we have yet to do any really serious technical damage. That doesn't mean we shouldn't be cautious but I am still looking for the bulls to get a little upside move here soon, especially with important jobs numbers coming up on Friday.
Tuesday, September 1, 2009
Bad Sell-Off Today; Terrible Day For The Bulls
It was a clear-cut victory for the bears today. After some mediocre action on Monday, the dip-buyers were quick to jump in this morning but found themselves trapped when good housing and ISM numbers were aggressively sold.
The dip-buyers have not found themselves trapped in a quick reversal very often in recent weeks, so it had a rather profound effect today when we reversed so quickly and with such vigor.
Not only was the reversal quite vicious but volume was heavy and breadth quite poor. There was no late-day bounce and many leaders were hit hard, particularly in the financial sector.
It was one of the most bearish days we have had in a while, but in the bigger scheme of things we have yet to do very much technical damage. The S&P 500 is still above its August lows and is just barely trading down to the highs we had in July. We broke the 1000 level and there isn't much support down to 975, but this is still just a pullback within a trend rather than a reversal of the uptrend that started in March.
Nonetheless increased caution is certainly warranted and you should make sure you stay particularly nimble. This action is a change in character and that means dip-buying is likely to become much more difficult as market players focus more on selling strength.
I still believe that there are some tenacious bulls out there who are hungry to buy pullbacks. The dip-buyers were frightened away today and the dip-buyers are the key to this market. If they lose confidence it is going to be a nasty ride, but one good smack like we had today is probably not enough to completely demoralize them.
It is a start, but conditions for bounces remain quite good. The way they play out in the next few days will tell us much about the health of this market...
The dip-buyers have not found themselves trapped in a quick reversal very often in recent weeks, so it had a rather profound effect today when we reversed so quickly and with such vigor.
Not only was the reversal quite vicious but volume was heavy and breadth quite poor. There was no late-day bounce and many leaders were hit hard, particularly in the financial sector.
It was one of the most bearish days we have had in a while, but in the bigger scheme of things we have yet to do very much technical damage. The S&P 500 is still above its August lows and is just barely trading down to the highs we had in July. We broke the 1000 level and there isn't much support down to 975, but this is still just a pullback within a trend rather than a reversal of the uptrend that started in March.
Nonetheless increased caution is certainly warranted and you should make sure you stay particularly nimble. This action is a change in character and that means dip-buying is likely to become much more difficult as market players focus more on selling strength.
I still believe that there are some tenacious bulls out there who are hungry to buy pullbacks. The dip-buyers were frightened away today and the dip-buyers are the key to this market. If they lose confidence it is going to be a nasty ride, but one good smack like we had today is probably not enough to completely demoralize them.
It is a start, but conditions for bounces remain quite good. The way they play out in the next few days will tell us much about the health of this market...
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