Short

AAPL likes these lines

Updated

AAPL has been on an incredible tear. Investors have been dumping money into it over the past few months as its a "safe haven" with its walled garden and customer fanboys yada yada yada along with the Vision Pro hype. This is all conjecture intended to build a narrative. At the end of the day, unlike other tech mega caps, AAPL has not shown signs of revenue recovery or growth from a year ago.

What AAPL has done, however, is recently crossed into the sell zone. Apple has grown 25% over the previous 14 weeks with the largest weekly decline in that timeframe being a whopping .6%. As you can see with the 2 pink lines, Apple just crossed over the first resistance line while having its all-time closing high.

Given how saturated AAPL and the other megacaps are right now, the market can only go up in one of two ways:

1. Mega caps continue to grow even though many are already pushing extreme P/E multiples (Apple is over 30 now and don't give me any AI / Vision Pro / new ad business - those are narratives to get to a 30x P/E for a 2.8B company, not extend it)
2. Mega caps remain stable while small - mid caps grow

Now, there certainly is enough dry powder to enable this second option. But it seems highly unlikely in my opinion. If I am a money manager looking at my returns now and what I expect over the next few years, I don't see a path for Apple adding another in market cap in 3 years (thats only a 10% yoy return, or 5% above the risk-free rate!) when compared to smaller companies. I'm going to start to rotate out some of my well-earned money.

This is an important week for the fed with the highest amount of disagreement in the bond market prior to a meeting in some time. I can see one of two scenario playing out for Apple:

1. Reasons that would cause aapl to drop to 160-165:

CPI prints high (4.6+)
Fed gives the middle finger to the market and raises rates, indicates that more hikes are definitely coming, etc.
A general market rotation occurs that sees a profit-taking on mega caps
Consumer spending shows (more) signs of slowing (if you're watching, lower economic groups already have increased rates of auto loan delinquencies and higher revolving credit - two typical canaries)
More anti-competitiveness lawsuit news in Europe (I maintain that this year Apple will be hit with the news that it must both cut its take rate from 30 to 10%)

1. Apple goes up to 194-196, then goes down to 165-170, this happens if:

CPI prints low (comes in as expected, 4.1) or lower
None of the above, and it just melts up to 32x P/E until investors think its a good time to cash in the chipe

Note

AAPL is doing AAPL things and once again closing at ATH, albeit on low volume for the day and for the week. It's not that there are a tremendous amount of buyers at this level as much as it's clear that there are no sellers.. at least not yet.

Apple is only 2% away from hitting the magical 3 trillion market cap again. On the weeklies, AAPL has had 3 losing weeks since the first week of March with the largest weekly loss coming in at a whopping .57%. This run truly is mind boggling as over $600 Billion has been added to Apple's market cap in just 3 months. Let that sink in. There are only 9 companies in the world with a market cap larger than $600 Billion and Apple just grew that much in less than 3 months.

I reiterate my prior statement that Apple will melt up to 32x PE. That is an additional $1.8 from where Apple is today and is ridiculously close to the ~$3.80 and change needed to hit the 3T market cap. I don't know that Apple will go full bear mode but I fully expect a large amount of profit taking and would look for a 10-12% haircut once it gets to those levels.

I'd also go as far as to suggest that it may hit ~191 in the next couple of days, and, in the scenario where it does hit that in June, those who make the market narrative will quickly shift to rising rates, economic measures for recessions, core CPI concerns, etc.

I will begin layering in short positions if/when Apple hits 190 in the next handful of sessions. Typically I would want to sell naked calls in a situation like this so that the premium gives me some buffer on moves to the upside but the premium on Apple options is so absurdly low right now that September calls @ 175 are selling at $17 and $5 of upside protection is not exactly a lot for a stock thats been riding the elevator the past 6 months. On the flip side, this means puts are also cheap with Sept @ 190 going for $8 now and Sept @ 185 going for $5.85 - these will obv be cheaper in my target price zone and will be primed for a really good entry if Apple over extends itself on the shorter timeframes in the next few days.

Finally, I would propose this set of questions in regards to when and how to think about Apple and the market's overall prospects for the next half year:

- if Apple is already at 32x P/E, how much higher can its multiple run before it is overvalued (if Apple gains another 10%, is a 35-36x PE justifiable for a company thats not growing 20% yoy?)
- If Apple is already at ATHs and pushing extended fundamental valuations, can the rest of the market and the major indexes continue to grow with Apple treading water or even losing value?

BullsNBearsEatPigs

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