Apple, Trump, tariffs and big tech regulation is on everybody’s mind today. We have been sceptical on Apple for some time, but current pessimism could be setting up an interesting bounce opportunity in Apple. Longer term the regulation of big tech is something to consider seriously though (more on this in a coming post).
The psychology of masses, investors included, remains the same since mankind started. Apple has been a classical casualty of this aggregate psychology that always ends the same way. We outlined our arguments weeks ago, and even compared Apple to Tencent, not as companies, but from the aspect of investors psychology.
Apple trades well below all moving averages, but note that it is approaching a trend line since mid-2017. It is also interesting to see the price action today, so far, a positive candle, despite the news.
Given the recent negative news flow as well as the “noveau” bearish investors on media, we would not be surprised to see Apple snap back up, if nothing just to confuse investors.
Apple VIX, VXAPL, is still rather elevated. The crowd went from only seeing upside to now being rather fearful.
Term structure of Apple has totally shifted looks. Three months ago (green), overall vol was much lower, but note also how shorter-term maturities traded inverted to longer term options (normal look). Current curve (orange), has shorter maturities at elevated levels compared to longer term volatilities.
For some perspective, see the below Apple (white) versus QQQ (orange) spread normalized over past five years. The spread has absolutely collapsed lately. Note that Apple has traded below the QQQ at times, but it is not a common pattern we have observed.
Below is the same chart over the past one-year period. The spread has gone from 1.3 to currently trading around 1.06. That’s a huge move.
Apple used to be the US market. The most successful (US) investor ever, Buffet, says never bet against the US. Let´s see how this plays out, but Buffet has definitely put his money where his mouth is when it comes to Apple.
For the more short-term investor, watch price action carefully here, because if these levels hold despite the negative news, Buffet might be proven right once again, if nothing for the short term.
Source: charts by Bloomberg