Apples Fall and Cars go Vroom! (AAPL, TSLA)

We find it noteworthy that former Fed chief Alan Greenspan saw fit to open his ample jowl last week and opine on the current state of finance and economics by saying –

“…we really cannot exit this without some significant market event… By that I interpret it being either a stock market crash or a prolonged recession, which would then engender another round of monetary reflation by the Fed. The end has to come at some point… If you look at a chart of the U.S. dollar index it has gone nearly parabolic in the last few months… In any market that is so one sided, that is accelerating so rapidly, that trend will end… it will most likely end in a fairly violent fashion.”

There you have it, brothers and sisters, by no less an authority than the 20 year Grand PooBah of the Loyal Order of Water Buffaloes – a man who did precious little during his tenure to check the excesses of the system, though he claims to be a gold believer and a ‘hard money’ enthusiast.

barney

What in the world makes a man pipe up post-facto to declare that those who merely followed in his footsteps – those who winked as the printing presses were ignited – are setting the stage for an economic tragedy?

Bizarre….

And though we agree with him in terms of the pain that awaits, the timeline for the so-called ‘event’ is never mentioned by he of turtle-eyed fame – nor could it be. And the fact that he mentions it today indicates that it’ll likely come far later than most expect, possibly years from now, and these latest comments will end up a footnote in some graduate student’s thesis on the ‘Financial Apocalypse of the Chelsea Clinton Presidency’.

bizarre

The System is Broken; Long Live the System!

 

We’re going to bring it back to earth now and look at a few trades that closed recently.

The first was opened on the 6th of January in a letter called Houston – We have a Situation. There, we reported on the negative effects of a diving crude price and predicted concurrent declines on the major market indexes. We suggested the immediate purchase of PUTs on the SPDR Dow Jones Industrial Average ETF (NYSE:DIA). Specifically, we recommended the DIA February 167 PUTs, then trading for $1.96.

And what happened?

 

The Dow continued lower – briefly – then rebounded, leaving our PUTs worth less than we anticipated.

So we took action.

On February 3rd, in Underground and Behind the Scenes, we sold the PUT and then sold two more of the same, each for $0.91, for a total of $2.73.

That put us up $0.77 (2.73 – 1.96) for the trade, and with last Friday’s options expiry that’s precisely where it ended. Call it a 39% profit, smile, and go mainline some milk.

sayno

Our second trade on the dock was our January 20th initiative, from a letter called Battling the Enemy Within.

There, we examined the Transport/Industrial relationship and called for the industrials to outperform over the near term. We suggested you purchase the IYT February 148 PUT for $1.90 and sell the DIA February 170 PUT for $1.91. You were credited a buck and a penny for the trade.

And there, too, we saw the options expire worthless last Friday. You took home $1.00 on nothing expended. Now go make cheese.

This Week’s Trade

 

We’re going to try something a bit off the wall this week, though not particularly dangerous or silly – as far as we can tell.

We’re going to set up a pairs trade between two very sexy companies. They’re both companies that have deep and committed followings and, as you’ll see, fairly large market caps. And very shortly, we predict they’re going to start moving in opposite directions. Let’s begin by introducing you to the companies (that need no introduction) and then lay out the trade.

The first company is Apple, Inc. (NASDAQ:AAPL), the largest company in America by market cap (by a country mile) and no stranger to investors and consumers the world over.

Apple trades with a Price/Earnings ratio of 17.8, not an egregious reading by any stretch, offers an annual dividend of 1.4% and has an unbelievable market value of $770 billion. That, by the way, is TWICE AS LARGE as the next biggest American corporation by market cap, Exxon Mobil (NYSE:XOM), which possesses a value of just… just $377 billion.

We include here for your general investment know-how a chart of the top 40 U.S. listed companies.

largeststock

The numbers are astonishing.

In any event, Apple Inc. has added some $140 billion to its market cap since the New Year – almost 20% – and we feel the stock is due for a break.

Have a look at the technicals.

aapl22415

With the stock trending at a value greater than its long term moving average by 54% (blue arrows) and RSI just now entering the overbought 80+ realm (red circle), we believe the momentum is about to slow for Apple, and look forward to a Newtonian gravity moment to begin any day now.


Sexy Stock #2

 

The next number is Tesla Motors (NASDAQ:TSLA), a company with more of a fan base than a true group of investors.

All the same, we believe the stock is about to pull out of a funk that’s plagued the shares for the last six months. From September highs above $290, TSLA fell to a recent low of $185 and has since recovered to sit at $207 yesterday.

Yet a look at the chart below would indicate that the worst is now over.

tsla22415

Tesla’s turnaround began in mid-December, before she put in her ultimate bottom. The red lines at bottom show a positive divergence between price and the RSI and MACD indicators, a development that speaks to a slowing of sales momentum.

At the same time, price was testing he long-term moving average (in yellow), three times approaching it and twice bouncing higher.

And finally, we see price climbing as the MACD indicator pulls above its telltale ‘waterline’ (black circle), another notch in the technical bull column, and one that speaks to near term gains, in our view.

The long and the short of it is Apple’s ripe for a fall, and Tesla’s just revving up.

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Options Trader Elite recommends you consider buying the TSLA April 230 CALL for $3.90 and selling the AAPL April 135 CALL for $4.10. Every pair traded credits you $0.20.

 

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Options Trader Elite recommends you consider buying the TSLA April 230 CALL for $3.90 and selling the AAPL April 135 CALL for $4.10. Every pair traded credits you $0.20.

 

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With love of the hunt,

Hugh L. O’Haynew, Senior Analyst, Normandy Research

See what people are saying...

  1. Brett hensley

    Betting against Apple at anytime seems insane. Tesla? Seems crazy to me. Interesting to watch this trade play out.

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