Investors are excited about the new iPhone 8 expected to be unveiled Tuesday.
Still, Apple CEO Tim Cook is selling Apple AAPL, +1.81% shares. What does he know that we don’t? Maybe there’s nothing there. Anyway, to explore the answer, let’s start with a chart of Apple stock.
Please click here for a monthly chart of Apple stock and observe the following:
• Apple will become a $1 trillion market-cap company if the stock rises to $193.70.
• Stock charts often display symmetry. The current move up is marked “B” on the Apple stock chart, and the prior move is marked “A.” So far, the current move is as symmetrical to the prior move as it gets in the real world. A price of $193.70 is within easy reach, especially if fundamentals of the iPhone 8 support the move.
• The RSI (relative strength index) has traced a lower high in the overbought zone and is declining. Stocks showing such an RSI pattern at a time of high expectations are typically vulnerable to the downside.
• The chart shows that this leg up has occurred on low volume. This makes Apple stock vulnerable.
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Stock moves around iPhone launches
Apple’s stock on average moves about 16% in the six months prior to an iPhone launch. But only about a 4% rise occurs in the subsequent six months.
Expectations are sky high for the iPhone 8. Those expectations are already discounted in Apple’s stock price. Any disappointment could send the stock plunging.
In Tim Cook’s shoes
Even though I have used a monthly long-term chart, most of the foregoing is about the short term. If you were in Tim Cook’s shoes and awarded $43 million worth of Apple stock, perhaps you would see the same risks as I have outlined here and sell the stock. Keep in mind the stock that Cook is selling was not bought in the open market but was simply awarded to him.
Important: Executives sell stocks awarded to them all the time to pay for their houses, yachts and many other reasons unrelated to the company. Normally, Cook’s stock sales may not be significant for Apple investors. However, in this case, the sale came right before the iPhone 8 launch. For this reason, this particular sale may not be meaningless, and investors ought to take notice.
What to do now
From a long-term perspective, there is significant upside potential in the stock. Please see “Apple’s stock could double on the ‘mother of all artificial-intelligence projects.’ ”
In the short term, a lot depends on where you bought the stock. If you are a longtime subscriber to The Arora Report, you are holding the stock from $18.71. When I made the call to aggressively buy Apple stock at $18.71 for the long term, I had suggested that the stock could go to $143. Now The Arora Report target zone is $185 to $205, but we see the potential for the stock to go much higher in the very long term. As a note of caution, “potential” does not mean that the stock will definitely get there.
Looking at the stock by itself, according to the algorithms at The Arora Report, in the short term the probability of the stock going lower is about 50%, the probability of the stock going higher is about 25% and the probability of the stock being range-bound is about 25%. However, Apple is part of the FAANG group. The other FAANGs are Facebook FB, +1.50% Amazon AMZN, +1.25% Alphabet GOOG, +0.28% GOOGL, +0.20% and Netflix NFLX, +3.02% If investors run up FAANG stocks, Apple will get pulled up.
For those who have been holding Apple stock for a long time, it’s worth holding. For those who bought it recently, it’s time to take partial profits. Please note that markets are dynamic and for this reason, The Arora Report reviews stocks such as Apple in its portfolio on a daily basis. Furthermore, very short-term trading opportunities may develop in Apple’s stock from the release of the iPhone 8.
There may also be trading opportunities in Apple suppliers such as Cirrus Logic CRUS, +2.52% Skyworks Solutions SWKS, +2.44% Broadcom AVGO, +1.49% Qorvo QRVO, +1.42% Analog Devices ADI, +2.21% and Micron Technology MU, +3.05%
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report.
Nigam Arora is an investor, engineer and nuclear physicist by background, has founded two Inc. 500 fastest-growing companies, is the developer of the adaptive ZYX Global Multi Asset Allocation Model and the ZYX Change Method to profit from change in trading and investing. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.