Apple Is Positioned to Take Olympic Gold

By the end of the summer of 2008 Apple (AAPL) will be in position to grab gold in the Desktop and the Mid to Hi-end Cellphone events. It’s all coming together for Apple, from the economic cycle to the Beijing Olympics. And I’m going to explain how it might play out, but first there’s a bitter pill that must be swallowed. 

We’re in a down market and things don’t look good. The Dow has recently dropped below January lows, the S&P 500 is skirting along critical support, and the Nasdaq dropped nearly 100 points last week. The market internals are dismal with decliners leading advancers by 2 to 1, and new lows are outpacing new highs by an astonishing 10 to 1! And let me tell you right now, it’s going to get worse before it gets better. Ouch!

The reason it’s going to get worse, is that as bad as things are, investor sentiment has not yet reached the level of fear needed to affect a trend reversal. This is apparent by looking at the state of two key indicators, the Volatility Index [VIX], currently at a relatively mild mannered 23.44, and the Put-Call ratio, which is sitting at a complacent 1.13. During the recent March lows, volatility and fear were rampant, the VIX was teetering on 34, while the Put-Call ratio was spiking as high as 1.80-1.90 intraday.

When fear is rampant, and everyone thinks we’re going to hell in a hand basket, the markets invariably reverse direction. The problem is, that as bad as things are, we simply don’t have enough fear to incite a reversal. So, we need a good push down to ramp up the fear and get this market moving in the right direction. The VIX is climbing, and the Put-Calls are getting there as well. But first, it appears that we’re going to see a bounce before this Independence Day-shortened week is over due to extremely oversold conditions on all time frames.

After we get the bounce, we need to move down to the depths required to get unbridle fear coursing through investor’s veins. This seems very likely, as the VIX is setting up in an inverse head and shoulders pattern, set to breakout soon. Now that may happen just before the long weekend, or just after, but in either case, when it does a reversal will be upon us soon after.

So, that’s the first act in this play. The second act is all Apple, with the release of the 3G iPhone on July 11th, with a 22 country rollout. Apple is clearly prepared for the event as FBR Capital Market analysts Craig Berger and Robert Pikover, released a note to clients Friday morning about Apple’s supply chains indicating that 2008 iPhone build volumes have been revised significantly higher to an estimated 15 million units for 3Q!

A follow up to the second act, is that Apple and China have apparently cleared the way when Apple dropped its revenue sharing demands. So now the question is, will Apple be able to get China Mobile (CHL) online with iPhones in time for the Beijing Olympics? It would be awesome timing as Apple will be opening two Apple Retail Stores in China, the first on July 19th in Sanlitun, a fashionable bar area of the capital city, according to the Shanghai Daily website. The second store will open during the Olympics in Beijing. If iPhones are ready by then, expect Apple to leverage the awesome marketing power of the Olympics.

This heightened exposure of all things Apple, plus the reduced iPhone price of $199, will be a powerful attractor for returning college and high school students. The third act. iPhones and Macs of every flavor will be flying off the shelves and from online stores. Hopefully this will bring a boost to ailing carriers like UPS and Fedex.

So, what’s the outlook for investors. Well, next week, as I suggested, there will likely be a bounce from oversold conditions in the markets. If the bounce is weak, it will present a good opportunity to take short positions. If it is strong, then we’ll need to wait and see, as a retraction may not be immediate. Soon after the market has retracted from the bounce, I would expect the VIX to breakout, and the Put-Call ratio to spike. As the VIX crosses 30 and nears past highs, and the Put-Call ratio clears 1.50, cover those shorts and go long. At that point we should be near a bottom. Then ride this puppy into Labor Day, and at that time, Apple can take the winners podium and collect its gold!

Comments

[tom1234]

are we there yet

[win]

Thanks, Zach. Your analysis and plan (last para) match mine. There is one wildcard, however: Oil.

Oil crossed $140, despite China, U.S. Congress and Saudi attempts to break it. If it doesn't fall drastically on Monday, it will rise - there are a whole bunch of longs (GS, MS,...) trying to get it to $150 or higher by July 4. If oil goes up $10 in the next week, it will crimp the bounce you may be expecting next week.

In my opinion, GS and MS (and the Energy Secretary) are trying to pump oil to one last high. When they decide that it must break (I think within a month or so), we will start to get analysts saying that Oil could fall to $120. They've prepared for that: MS says that at $150 - no sooner and no later - Oil will magically start to reduce demand and affect price. That's it. And of course their saying so now will have no effect on the price.

Any way, in sum: I agree, but watch the oil. Good site, BTW! I might add it to my on-off blog.

[YASHIVA]

OIL IS DEFINITELY THE WILD CARD, NOT ONLY FOR USA BUT FOR THE WORLD. HOWEVER, THERE IS 2/3 OF THE WORLD STILL UNEXPLORED FOR OIL, TAKE ASIA, AUSTRALIA AND AFRICA. FOR THE PRESENT, WE HAVE TO LIVE WITH OPEC. IF BUSH AND ISRAEL BOMB IRAN, WOE UNTO THE OIL CONSUMER.
HOWEVER, MANY COUNTRIES, INCLUDING INDIA, SUPPORT THEIR OIL PRICE WHILE OUR GOVT LETS US BLEED, ALONG WITH THE MIDDLE EAST WHERE WE SPEND BILLIONS OF DOLLARS EVERY DAY. IF WE CAN SOMEHOW STOP THIS BLOOD LOSS, WE WILL BE ALRIGHT.
DID WE TELL THE AMERICAN INDIANS THAT WE COULD HAVE GUNS TO FIGHT THEM WITH, BUT THEY CANNOT UNDER AN INTERNATIONAL CONVNETION? WHO HAS THE RIGHT TO SAY WHO CAN CARRY AMMUNITION? EVEN THE SUPREME COURT UPHELD THE RIGHT TO CARRY ARMS!
COMING BACK TO APPLE, SINCE MANY COUNTRIES SUPPORT OIL PRICES, APPLE AND OTHER INTERNATIONAL COMPANIES MAY NOT SUFFER AS MUCH. GOD BLESS AMERICA

[roger that]

Yashva says "Many countries, including India, support their oil price while our government lets us bleed."

Folks in India pay more for gasoline than we do. They pay only $1 or less at the pump. They then pay the govern ment taxes to cover another $14 or so in gasoline price. The government squanders about half of that tax money, as all governments do, then pays the rest of it for the gasoline the consumer didn't pay for at the pump.

Seems like its India that's bleeding its consumers, not America.

Governments don't have money, except what they take from people who earn it. They money they return to citizens is always far less was taken.

[Oh Blah DeeBlah Dah]

RE: "There is one wildcard, however: Oil."

=====================
The more expensive oil gets, the more productive individuals and corporations need to be.

The Apple iPhone will be the most desired mobile device for convergence and ease of use.

The Apple computers, mainly Apple notebooks, will be the most desired computers because of the UI (user interface), lack of viruses, ease of use, and low cost of maintenance.

Over 100 million computers will be sold over the next 12, bearish months. Apple will be the most cost-effective, for EVERYONE, to buy in a cost-conscious, competitive market

[Partners inGrime]

Apple computers has a great user interface, and the Unix operating system is stable as well. I'm looking forward to trying out Apple's version of cloud computing: MobileMe.

[User 219422]

I can't believe that oil is sustainable for long at $140+. I will say though that if Israel attacks Iran - all bets are off. Could spike to $200. At some point, it's got to drop at least 20% from current levels.

[maxie.me]

Just a note the "estimated 15 million units for 3Q" is a total for all of 2008 not for the 3rd quarter.

[FreeRange]

As oil and food prices climb, the worlds economies slow, and inflation sets in across all product areas, the Apple product line becomes even more compelling. Apple products and their related ecosystem are THE efficient and powerful tools for communications and entertainment as we spend more time in our homes, local communities, on mass transit, and at our desks! Cocooning is here, and Apple products will become more and more the tools of choice because of their shear ease of use, vertical integration, and access to media and entertainment through iTunes and the Apps store. NOTHING can touch this full suite of products and services.

[wallawallabingbang]

iPhone:Cheapest form of handheld computing for the masses in developing countries.

[Mac'em X]

@wallawallabingbang: "iPhone: Cheapest form of handheld computing for the masses in developing countries."

Good point. I'm first curious to see, though, how the iPhone will take off in the advanced cell phone markets, like Japan. Let the countdown begin –

[mollytjm]

another great article...thank you! Apple knows the 'promise' of sales in China and it woudln't be a surprise if they got it all together in time. i'm counting the days to july 11th!