Daily Archives: January 21, 2013

Stocks to Watch (Part 4)

January 21, 2013 (7:00 pm)

We’ll be watching a few charts as the week kicks off tomorrow. Generally, we remain bearish on the markets. The SPY and QQQ’s leaped above their upper Bollinger Bands and became overbought. Volatility has plummeted. We expect that the most likely outcome is a trend reversal coinciding with earnings. A majority of stocks that we’re watching have a bearish tilt, and have seen significant rallies into earnings. Expectations are high heading into earnings. That is not a bull’s friend.

American International Group: We just caught on to this one. Too late to participate in the first move, but this one likely has more room to run (on the downside). The shares formed a well-defined rising wedge over the last 11 weeks and recently broke down. The shares re-test the lower trend line and failed at that resistance. The target price is around $33. We’ll see if we can get a good bearish entry this week.


Broadcom: We participated in the move down in BRCM before it lept above the upper trend line of its rising wedge. It looks like we saw a false breakout on Friday, and the shares have since fallen back within the pattern. That’s a bearish signal. We’ll keep a close eye on this one.


Berkshire Hathaway: We entered into a bearish put position in BRK.B in early January. It has slowly and steadily moved up on declining volume. The RSI has been overbought. The Chi-Osc is at levels that have tended to precede near-term sell-offs (red vertical lines), and it leaped above its upper Bollinger Band two weeks ago with no retracement. In the past, the shares have sustained these types of rallies for two or three weeks before retracing a significant portion of the move. We’re patiently waiting for a reversal. As always, if we see evidence to the contrary, we will not hesitate to close our position for a loss.


General Electric: We started reviewing GE’s charts over the weekend. It has been forming a very substantial symmetrical triangle and the shares broke out on Thursday (with follow through on Friday). The implied price target of this move is $3, which could bring the shares up to $24.25. We’ll be watching for an entry this week.


Gold ETF: As we tweeted on Saturday, GLD has been forming a picture perfect falling wedge and has since broken out. After re-testing the upper trend line, the shares rallied and have formed a bull flag. We expect it to continue up and are holding our positions.


Netflix: We entered bearish NFLX positions last week. Its rising wedge broke down and failed on a subsequent re-test of the lower trend line. We remain bearish and plan on holding our positions.


Don’t hesitate to reach out with any questions or comments.

About Those “iPhone Math” Rumors

January 21, 2013 (6:15 pm)

Late last night, reports surfaced alleging that Apple would introduce three new variations of the iPhone during 2013. The first is the iPhone 5S, expected to be released in late Spring or early Summer. This would include a slight refresh and upgrade of the iPhone 5 hardware. The second is likely to be the iPhone 6, which would come out about a year after the initial iPhone 5, and just before the 2013 holiday season (likely mid-October). The third variation is where the rumors are swirling.

The “iPhone Math”. The report describes a new iPhone, dubbed the “Math” (we’ll discuss the name in a moment), which is rumored to have a 4.8″ screen. The iPhone 5, after much consternation, included a larger screen than all prior iPhone’s (previously they had 3.5″ screens before introducing the huge 4″ screen). Apple did not take this step lightly. They carefully selected the screen size that would fit easily in our hands. They prepared developers and made it fairly straight-forward for them to redesign their apps to fit the new taller screen. If the new device has a different resolution than either of the previous iPhone’s (which it would need to in order to keep the ‘retina’ moniker), developers would yet again need to tweak their apps. Would Apple, who plans years in advance and carefully selects the appropriate time to release a new product, really make developers go through the process of redesigning their apps only nine months after the last go around?

“Math”… Really? As for the name iPhone Math, it smells like a bad game of telephone. It’s not hard to imagine somebody saying iPhone “Max”, which the person on the other end hears as iPhone “Math”. For a bigger design, Max makes more sense to us. That said, even iPhone Max doesn’t make much sense. You’d think iPhone Pro or another adjective Apple already uses in their product line would suffice.

Reasonable Rumor? So where does this product fit in? In our view, Apple needs to introduce a larger iPhone. While this is anecdotal, we’ve heard through a variety of sources that the Asian markets (primarily Asian men) tend to prefer bigger phones. The Samsung Galaxy SIII is reportedly doing very well in those markets. Since China is likely the fastest growing, and soon to be top selling, market for Apple, it’s important for them to address this market. More and more of the average user’s time is spent checking email, browsing, and using apps. All of these functions are made easier with a larger screen. But how can they do so without causing developers the heartburn of redesigning their apps? The same way they did with the iPad mini…

The iPad mini does not yet have a retina display – even though its larger sibling (iPad 4) and smaller counterpart (iPhone 5) do – and it will likely soon outpace the traditional iPad in terms of sales. Clearly the lack of the retina display did not drive away as many consumers as we initially expected. Apple could easily come out with a 4.8″ iPhone Pro with the same resolution as the iPhone 5. The display wouldn’t be quite as perfect, but a majority of users likely wouldn’t be able to tell the difference. It would also keep the cost down. And, more importantly, its loyal developer base would continue to view iOS as the easiest mobile OS to design and maintain apps for. We hope Apple does choose to go down this path. There is no reason to limit the size of its most popular device, except for concerns regarding developers and the app development process. If they’re able to keep developers happy, they should absolutely explore this market opportunity.

Let us know your thoughts.

Why Apple Should Announce a Stock Split on Wednesday

January 21, 2013 (11:30 am)

I wholeheartedly agree with an opinion piece Nick Nansen posted this morning, called Time for Apple to show the love. “In my travels around the world and the United States,” Nansen begins “it has become obvious to me that the vast majority of Apple users do not own Apple stock. I always ask them why? The first answer from everyone is always the same, ‘I cannot afford it.’”

I remember spending the holidays with my parents, and watching them give gifts of Apple stock to friends and family. At the time, the shares were between $9-$25 (I know what you’re thinking, but they weren’t that cheap. They often gave more than one share!). It was a great gift – especially for those who enjoyed using Apple’s products. Not only would it eventually appreciate to over $700, but it had the added benefit of convincing those in their early- to mid-teens to start following the markets.

But that time is no more. Even after the recent 29% correction, a single share is far too expensive to make for a reasonable gift. But other than gifting, why does this very high price contribute to potential manipulation? It’s all about the shareholder base. Nansen suggests a 10-for-1 stock split, and I completely agree. This would allow all of Apple’s most devoted users around the world (which is now quite a sizable group) to buy their favorite company.

Instead of being at the mercy of institutional funds’ asset allocations and macro research, the shares would have a steady group of long-term holders. A group that fundamentally knows and loves the company they hold, and one that is not so fickle as to run away because of the Apple Maps debacle or a Samsung commercial. Additionally, a stock split would increase the outstanding stock “float” by 10 times. This would make it increasingly difficult to manipulate shares into options expiration.

Let us know what you think.