Apple losing momentum along with the broad market
The biggest company in the world by market cap - Apple, has entered a consolidation phase with prices dropping about 1.5% in still thin New York trading today. We are looking for a break lower to buy daily puts on the tech sector giant.
We need to see 551 give way to open up the possibility for a pullback towards mid-December low at $539. Until the price stays above 552 more opportunistic players can try to buy calls around $552.
The main reason behind Apple's stock drop today is the broad market weakness. Shares did not get a boost by Cantor Fitzgerald's commentary that the stock will be the best large-cap pick for the new 2014. As margins are thinning and return on equity is dropping to multi-year lows challenges ahead remain.
Shares close 2013 around $560 and marked a very good year for Apple, even without us knowing the full scale of the new iPhone's and iPad Air's success. We believe that the company has had a blowout quarter during the holiday shopping season.
However earnings are not reported before the 22nd of January and we feel there might be a scope for a correction if the company's share prices close below $550 on a daily basis. In the mean time as we already mentioned hourly calls around $552 can be put in play.
If share prices recover in the coming days we will be looking to buy more calls in anticipation of great earnings results. Further on if we get a break above 558 we would be buying daily calls for the next trading day.
The products that the company delivered last quarter are re-establishing the company's dominance in the mobile space, however for this year to be successful they will have to come up with a set of new products that accommodate wider needs by consumers or come up with some mind-blowing new product.
As we have mentioned already margins are getting thinner and CEO Tim Cook has already come to experience media attacks for the company lagging behind in innovation. We tend to disagree on this point but it does not matter much if the majority of Apple's shareholders get worried.
The company has to bring new products and they better be revolutionary this year, the evolution of the iPhone and iPad might be getting consumers exhausted.