Apple Stock Trading Strategy 1

Today I have decided to dedicate my time into monitoring Apple’s stock movements, and hopefully forming productive strategies for profit.  This is the first in a series I would like to do every earnings quarter.

Apple Missed Earning Estimates

For a decade, Apple has consistently beat analysts’ expectations time and time again.  This however was not the case on October 18, 2011 when it released its 4rd quarter results.  Although they came close to expectations, they actually came short.  This hasn’t happened in a long time as Apple is known to low-ball their guidance and then over deliver.  As a result, the stock was punished in after hours and now is down more than 5% at $400.15 during regular trading hours.  It was down as much as 7% in after hours trading.

In my opinion, it is a good time to start some positions here and average down if  the stock continues to slide.

Here are a few reasons why I am bullish on AAPL:

1. Apple missed because people were anticipating and holding out for the new iPhone 5 which did not materialize.  This has affected sales of the iPhone 4 during the quarter.

2. Although people were disappointed that there is no iPhone 5, the newly released iPhone 4s sold more than 4 million units in its first weekend.  This is a record for Apple and shows that the pent up demand theory lends credence.  Additionally, iPhone 4s re-orders topped 1 million units, another milestone record.

3. The holiday season is about to start.  With such strong initial sales of the new iPhone, I expect this to accelerate into the Christmas shopping season.

4. Apple’s Siri intelligent voice assistant is simply revolutionary.  Although voice commands were common in mobile phones long ago, no one has honed its usefulness and simplicity to the degree that Apple has demonstrated.  Although Android and other mobile devices available has similar features, they have failed to integrate  it as seamlessly and elegantly as Apple.  I believe that this is the next step that all smart phones needs to take and Apple got it right and has a head start in integrating it completely into the new iPhone.

5. Despite Apple’s tradition of ultra conservative guidance and over delivering, they have actually guided quite high this time around.  I believe that this shows that they are very optimistic about the current quarter and will most likely surprise the analysts  to the upside again.  How analysts failed to take into the account that sales were not going to be as strong due to the anticipation factor is beyond me.

6. China.  Apple is starting to focus more on China and growth is showing up in their numbers.  They are still in their early stages of expansion and have a lot of room to grow in the fastest growing economy.

All that being said here is the investment strategy:

1. Buy 30% at this level of around $400.

2. If there is a dip to around $390, buy another 30%.

3. Due to the uncertainty of the European Crisis, it might spill over to AAPL if things gets ugly.  If it drops to around $380 because of this, use up the rest of the 40% here.

4. Because I no longer favor a buy and hold long term strategy, re-evaluate your positions just before the next earnings release.  I’m estimating that the stock should be able to climb above $430 just before the next quarter’s earnings.  You may or may not want to sell before earnings depending on your comfort level.  Traditionally Apple will beat earnings but look what happened this time around.  The key is to re-evaluate things before you make a decision.  A lot of things can change within a quarter for high tech companies.

Disclaimer: I own AAPL and I am looking to add to my positions.