Apple: Sell Into Strength

Apple (AAPL) has seen its share price run up considerably in recent months, but could soon experience a pullback due to both fundamental and technical reasons. The overall trend higher remains intact for Apple, but investors should still be aware of potential headwinds and how to position for it. On a long-term chart, Apple looks overbought to a level that traditionally has seen selling pressure in the months after. Moreover, relative to the broader S&P 500, Apple is hitting relative resistance levels.

Although Apple’s price to earnings ratio is still very reasonable, its current level has been an area where investors have taken profits in the past. Finally, with its upcoming product release, shareholders could play the buy the rumor, sell the news game, also leading to selling. Apple remains a long-term buy, but selling pressure for a number of reasons could be on the horizon, which gives rise to an interesting options strategy to hedge out your position.

Price Action

The first chart of interest is Apple on a monthly timeframe, going back to early 2005. Over the last decade, Apple’s trend has been significantly higher, with various pullbacks along the way. The pullbacks have not done structural damage to Apple’s uptrend, and for the trend followers out there, Apple continues to show long-term strength until the trend is violated.

Something to take into consideration however is that when Apple’s price action is very strong, leading it to run well above its 10-. 20-, and 40- month moving averages, a reversion to the mean usually follows in the months after.

Of course, there are periods where Apple trades well above its long-term monthly averages for many months, or years, but this current period comes alongside a number of other warning indicators.

Relative Price Action

Apple has pulled back following periods of outperformance relative to the S&P 500 since the financial crisis. The chart below is a ratio of Apple’s price to the S&P 500 index. In 2012, 2015, and now in late 2017, Apple’s price has tended to sell off following outperformance, which led the tech giant to reach highs of a 0.065 ratio to the index.

You can think of this as price outperformance becoming stretched, and thus reverting back lower to the average. The 0.065 may not hold, and Apple could break out higher, which in itself would be a significant signal, but based on the recent past, investors have taken gains as Apple runs higher to current relative levels.

Valuation Multiple

Similar to the chart above, investors have tended to take profits over the last decade as Apple approached an 18-trailing, 12-month price to earnings ratio. Although the valuation multiple is still considered undervalued to the broader market by most, investors have generally chosen taken profits at these levels.

The range is fairly significant, with investors having scooped up the tech giant around a 10 PE, while choosing to sell as the valuation multiple approached 18. This trend looks to be continuing as selling pressure has started to build at a PE near 18 currently.

Fundamental Narrative

While the company remains fundamentally well positioned for the long-run there are a number of headwinds that could lead to selling pressure into the end of the year. Issues with shipment delays of its iPhone X have created shortages, which could weigh on guidance when the company reports quarterly results on November 2. According to Gizmodo:

“There have been rumors that the company is having difficulty producing the 3D sensors that power facial recognition in the highly anticipated iPhone X is leading to manufacturing delays. This could ultimately lead to shortages when pre-orders for the device open on October 27th.”

Additionally, there have been negative comments regarding the iPhone 8 due to the incremental nature of its upgrades, while the iPhone X is pricey, with customers potentially delaying purchases in anticipation of upgrades next year, ultimately weighing on shipment performance later in FY18.

Guidance will be key for Apple during its conference call, but again, any hesitation regarding iPhone X demand further out into 2018 could drive its share price lower. Considering the quantity of overbought readings on the indicators listed above, investors have shown the propensity to sell at these levels should expectations begin to wane.

The Trade

Long-term investors unconcerned about 5%-10% corrections should stick to the game plan and continue to hold shares. For more opportunistic investors, you can trim your longs, and add more on a pullback, or even go as far as to initiate a put spread to make money on a potential down move over the next few months, while also leaving unlimited upside potential.

The spread I’m looking at is the June 2018 155/145 bear put spread, costing $ 4.20 to make $ 5.80, or a 138% return on capital. The position is a play on a minor pullback to its major trend line. Remember that it is possible to lose all of your premium in the options strategy, and thus the position must be weighted appropriately.

Conclusion

Apple remains in a strong uptrend, but a number of factors are shaping up that signal a potential drawdown lower. Price action is overbought on long-term charts with relative price action to the S&P 500 also looking stretched. Moreover, Apple currently trades at a PE level that traditionally has served as resistance, leading investors to take profits in recent years. Finally, there are a number of fundamental factors that could weigh on the stock in coming months. For buy and hold investors, this isn’t something to be too concerned about, but more tactical investors can potentially gain from a 5%-10% correction lower, as Apple reverts toward its major trend lines.

Disclosure: I am/we are short AAPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Put Spread

Tech

Apple and GE team up on software to track power plants, machinery

(Reuters) – Apple Inc and General Electric Co say they are working together to make it easier to write software that can track power plants and jet engines on Apple’s iPhones and iPads.

The companies have come up with a tool for app developers to connect Apple’s iOS operating system more easily to Predix, the cloud-based software at the heart of GE’s effort to turn itself into a “digital industrial” company.

The Predix software connects sensor-laden industrial machines like wind turbines, jet engines and elevators to data centers, so that streams of information from the machines can be analyzed to help predict failures and make the machines run more cost effectively.

GE expects the software to help generate $ 12 billion in digital revenue by 2020, though it took a two-month “time-out” earlier this year to iron out technical problems.

Now with the help of the new software built with Apple, which GE plans to release on Oct. 26, more information from Predix will be available to the on-the-ground managers of factories and power plants who work most closely with GE’s equipment, said Kevin Ichhpurani, executive vice president of global ecosystem and channels at GE Digital.

For example, Ichhpurani said, a power plant manager might be debating the best time to take a generator offline for scheduled maintenance. With the Predix software, the manager can see data on the machine and could share notes and photographs from an iPad at the site of the generator and even start a video call.

“These decisions can be made at the power plant or on the factory floor, as opposed to being made at corporate,” Ichhpurani told Reuters in an interview.

As part of arrangements between the two companies, GE plans to make iPhones and iPads the standard mobile devices for its 330,000 employees and will also offer Mac desktop computers as a choice for them.

In return, Apple will help promote GE’s Predix software to Apple’s enterprise customers. Apple’s salespeople will be trained on Predix’s capabilities and will promote the software in sales situations alongside iOS devices, Susan Prescott, vice president of product market at Apple, told Reuters.

Over the past several years, Apple has courted business software firms such as Accenture PLC, International Business Machines Corp, Cisco Systems Inc, Deloitte and SAP SE in an effort to move business applications over to iOS devices and make them easier to use in corporate settings.

Reporting by Stephen Nellis; Editing by Leslie Adler

Tech

Apple Considered Buying Medical Startup Crossover Health

According to a new report on Apple’s healthcare push.

Apple’s push into healthcare may have included buying a popular startup that runs on-site medical clinics for companies.

The consumer technology giant spent several months discussing whether to buy Crossover Health, but eventually no deal was reached, according to a CNBC report published Monday that cites unnamed sources.

The report didn’t say why the deal fell through, but said it was intended to help the company possibly expand into primary care. Apple also approached the nationwide primary care group One Medical for some sort of deal, according to CNBC, but it’s unclear what the deal was intended to be.

Crossover Health operates four in-person clinics in Silicon Valley and one clinic in New York City, according to its website. The startup also maintains on-site health centers for companies like Facebook fb and Apple aapl that offer a variety of services like primary and urgent care and physical therapy.

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A Fortune story published in 2015 about Silicon Valley health initiatives described Apple’s Crossover center “as more of an Apple Store than a doctor’s office,” regarding the center’s decor and environment.

Apple CEO Tim Cook recently told Fortune that Apple is “extremely interested” in healthcare sees it as a “business opportunity.”

“If you look at it, medical health activity is the largest or second-largest component of the economy, depending on which country in the world you’re dealing with,” Cook said.

Apple’s medical tool for developers and another Apple health-initiative, Research Kit, was recently used to help gather data for a study on asthma and health. One of the Mount Sinai researchers who worked on the study said that ResearchKit was “particularly suitable for studies of short duration that require rapid enrollment across diverse geographical locations, frequent data collection, and real-time feedback to participants.”

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Irish court gives $1 billion Apple data center green light

DUBLIN (Reuters) – Apple may proceed to build a 850 million euro ($ 1 billion) data center in Ireland, the High Court ruled on Thursday, bringing relief for the government after a two-year planning delay which it feared could hurt its reputation with investors.

Apple in February 2015 announced plans to build the data center in a rural location in the west of Ireland to take advantage of rich green energy sources nearby.

Planning permission was granted by the local council six months later, but a series of appeals blocked Apple from beginning work.

High Court judge Paul McDermott on Thursday dismissed two separate appeals against the planning permission, clearing the way for the project to proceed.

Ireland relies on foreign multinational companies for the creation of one in every 10 jobs across the economy and sees major investments such as data centers as a means of securing their presence in the country.

A similar Apple center announced at the same time in Denmark is due to begin operations later this year and Apple has announced it will build a second data center there.

Irish Prime Minister Leo Varadkar met Apple executives last month and said they had made clear their frustration with the planning and judicial delays and warned the process would color decisions that they might make about future investments.

The government has said it is considering amending its planning laws to include data centers as strategic infrastructure, thus allowing them to get through the planning process much more quickly.

It has said it will be one of the biggest capital investment projects in the west of Ireland, providing 300 construction jobs and 150 on-site permanent jobs.

Writing by Conor Humphries and Padraic Halpin

Tech

Apple sees sharp increase in U.S. national security requests

(Reuters) – Apple Inc has received more than three times as many national-security related requests from the U.S. government in the first half of this year versus a year ago, according to a company report on Thursday.

Apple said it had received between 13,250 and 13,499 national security requests affecting between 9,000 and 9,249 users. That compares with a range of 2,750 and 2,999 requests affecting between 2,000 and 2,249 users in the first half of 2016. (apple.co/2xO5fLM)

The requests come in the form of so-called National Security Letters, or NSLs, and requests under the Foreign Intelligence Surveillance Act, or FISA. Apple and other companies report ranges because government rules prevent disclosing precise numbers.

Apple declined to comment beyond the figures it released.

The disclosures are voluntary, and firms like Microsoft Corp, Alphabet Inc’s Google and Facebook Inc have yet to report any figures for 2017. In the past, those companies have issued more detailed reports, for example separating FISA requests and NSLs. The government requires they wait six months to report that level of information.

It was not immediately clear what drove the increase in requests to Apple. But Andrew Crocker, a staff attorney with the Electronic Frontier Foundation, said that the number of government requests to technology companies has been increasing since 2014, when data first started to become available as part of a settlement between technology firms and the government.

“There’s not a huge track record here, but you can start to make a simple graph. The trend does seem to be upward,” Crocker said.

Crocker also said the higher requests to Apple could represent it coming in line with its peers. Despite Apple’s huge user base – it has sold more than 1.2 billion iPhones – the number of requests to it had been relatively low compared with firms like Google or Microsoft.

National security letters are a type of government subpoena for communications data sent to service providers. They are usually issued with a gag order, meaning the target is often unaware that records are being accessed, and they do not require a warrant.

Reporting by Stephen Nellis in San Francisco; Editing by Lisa Shumaker

Our Standards:The Thomson Reuters Trust Principles.

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Apple will open Siri to developers and launch Amazon Echo-like smart speaker, report says

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Apple has big plans for Siri that will make the company’s famous assistant a lot more useful, according to a new report.

The company will soon open up Siri to developers with new software tools that will allow Siri to tap into more third-party services, according to a new report in The Information. Apple is also working on a new pice of a hardware, an Amazon Echo rival that will work with Apple’s smart home platform.

Apple plans to put Siri in the hands of developers with a new software development kit (SDK) that will reportedly be called the Siri SDK. The Siri SDK could launch at next months’s World Wide Developer Conference, where Apple typically previews the newest version of IOS and its latest developer tools. Read more…

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Senate releases draft of controversial encryption bill aimed at Apple

Apple logo

(Reuters) – Two U.S. senators on Wednesday issued a formal draft of a controversial bill that would give courts the power to order technology companies like Apple to help authorities break into encrypted devices or communications for law enforcement or intelligence purposes.

The proposal arrives just days after an earlier draft leaked online and drew fire from security researchers and civil liberties advocates who warned it would undermine Internet security and expose personal data to hackers.

Those same groups on Wednesday said the new draft is little different from the leaked version.

The bill comes as the U.S. Justice Department has redoubled its efforts to use the courts to force Apple to unlock encrypted iPhones.

Apple vs FBISenators Richard Burr and Dianne Feinstein, the Senate intelligence committee’s Republican chair and top Democrat, said in a statement they intended now to “solicit input from the public and key stakeholders before formally introducing the bill.”

“I am hopeful that this draft will start a meaningful and inclusive debate on the role of encryption and its place within the rule of law,” Burr said. “Based on initial feedback, I am confident that the discussion has begun.”

The new discussion draft does not require manufacturers or communications companies to process, transmit or store data in any particular format.

Rather, it requires companies, upon receipt of a court order, to turn over to the government “data in an intelligible format” even if encryption has rendered that data inaccessible to anyone other than the owner.

Companies must ensure their products “be capable of complying,” the bill states. Critics say that amounts to a ban on strong encryption.

The latest version of the bill narrows the scope of cases where a court can issue an order. Those include crimes that caused or could cause death or serious injury or that involve drug offenses or child victims, in addition to foreign intelligence operations, according to the text.

Andrew Crocker, staff attorney at the Electronic Frontier Foundation, a digital rights group, said changes in the new discussion draft were minimal and the bill still threatened Internet security because companies would only be able to comply by weakening encryption in all their products.

The proposed legislation, which is expected to continue facing strong opposition from the technology sector and privacy advocates, faces an uphill battle in a gridlocked Congress.

“This flawed bill would leave Americans more vulnerable to stalkers, identity thieves, foreign hackers and criminals,” said Democratic Senator Ron Wyden in a statement.

(Reporting by Mark Hosenball and Dustin Volz in Washington; Editing by Andrew Hay)

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Barclays signs on to Apple Pay at last


British bank Barclays has announced that its accounts and cards with Apple’s contactless NFC-based payment service that’s accepted at more than 400,000 retailers and services across the UK as well as within apps. The bank is awfully late to the mobile payments game; Apple Pay arrived in the UK about eight months ago, and Barclays missed its own deadline to roll out support for the service at the end of March. Barclays says you can use Apple Pay with its Personal, Premier or Wealth debit cards as well as with a Barclaycard. That should give Apple Pay an edge over…

This story continues at The Next Web


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Apple Music for Android now has a widget, which leaves iOS users wanting


Apple Music for Android now has a widget, leaving iOS users swooning. It’s a simple addition; all you can do is control the playback. But the ability to pause, play and skip tracks without actually entering the app is a very Android feature. If you’re interested, here’s the full changelog: Add songs from the Apple Music catalog to playlists without having to add it to your library Redeem gift cards in Settings to renew your membership using iTunes credit See what’s playing on Beats 1 directly from the Radio tab — without having to tune in Tap the name of…

This story continues at The Next Web


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San Bernardino DA: Apple is not ‘the Orwellian arbiter or definer of privacy’

Apple Store San Francisco Justin Ennis Flickr

The U.S. District Court handling the Apple-FBI encryption case today published the entire amicus curiae brief from San Bernardino County District Attorney Michael Ramos in support of the U.S. government. And oh, is it contentious.

Ramos, an elected official in the county where the shootings took place in December, takes several shots at Apple specifically. Under a section boldly entitled, “Apple’s assertion of standing to protect privacy is illusory,” he questioned how Apple can suggest that it offers what he calls absolute privacy.

“While Apple can represent what it chooses in its marketing of its devices and operating systems, Apple is neither the legislature nor judiciary empowered to define privacy as absolute,” he wrote. “Apple is not a public policy maker. Apple is a for-profit corporation. No one has appointed or elected Apple to be the Orwellian arbiter or definer of privacy for society or even for all of Apple’s customers.” And anyway, Ramos wrote, this “absolute privacy” isn’t supported by the Constitution.

Ramos is supporting the U.S. government through legal briefs alongside Federal Law Enforcement Officers Association, the Association of Prosecuting Attorneys, National Sheriffs’ Association, and other entities. Many technology companies, including Box, Facebook, Google, and the defunct encrypted email service Lavabit, have filed briefs in support of Apple in the case.

In Ramos’ filing, he took issue with the way Apple has brought up many topics that aren’t actually before the court. One example is the prospect of identity theft that could result if Apple were to unlock San Bernardino shooter Syed Rizwan Farook’s iPhone. “Unwarranted government surveillance” is another matter that isn’t actually at the core of the case, Ramos argued. But later, Ramos brought up certain “criminal” things that he said iPhones do currently harbor, even though they are not directly being debated in the case.

San Bernardino County District Attorney Michael Ramos.

Above: San Bernardino County District Attorney Michael Ramos.

Image Credit: San Bernardino County

“Apple’s expressed concerns that criminals may attempt to intrude into iPhones and acquire information contained on the phone has some merit, however, it is not the complete picture,” Ramos wrote. “The fact is that criminals area already using iPhones, every day, everywhere, and that those phones contain evidence of their criminal activity of violent crimes, human trafficking, sexting, revenge pornography, child sexual exploitation, and identity theft committed against innocent victims, and that the evidence resides only on the iPhone. This is real evidence of crimes. It is not grocery lists or restaurant reviews that are at issue.” (Side note: Sexting between consenting adults is not necessarily illegal. To be fair, legal issues do arise in certain states when minors are involved.)

In making the case it would be appropriate for Apple to solve problems that it created, he wrote that companies that make dangerous things have to fix them, and “it can be argued that the iPhone with its current encryption is dangerous to victims.”

Ramos’ request to participate in the case with an amicus curiae brief, which was posted online yesterday, mentioned that Farook’s iPhone “may contain evidence … that it was used as a weapon to introduce a lying dormant cyber pathogen that endangers San Bernardino County’s infrastructure … and poses a continuing threat to the citizens of San Bernardino County.” The passage received media attention. The actual amicus brief, unfortunately, did not elaborate on that particular statement.

What Ramos did make sure to include is a footnote pointing out that the U.S. District Court made an error in the caption for the case, which has been subsequently repeated in each filing. “Although correctly recorded in the search warrant attached to the United States Attorney’s Ex Parte application to compel, the vehicle license plate noted in the court caption is incorrect. The correct number is California 5KGD203,” Ramos wrote.

For a complete overview of the Apple-FBI encryption case, check out our timeline.

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In pictures: Apple faithful already forming lines in front of Friday’s iPhone 6s launch

Marcus Barsum waits outside the Apple store in central Sydney Thursday. Reuters/David Gray

Yes, it’s that time again, when the Apple faithful/crazy line up way early to buy the next version of the iPhone, this time the iPhone 6s and 6s Plus.

This year, people are standing out in the elements — and sleeping there overnight — to buy a phone that looks identical to the one they already have, but with, um, an updated camera and a new kind of screen press.

Here are the lines, in cities around the world.

New York

Screen Shot 2015-09-24 at 10.53.45 AM

Above: Waiting in line in NYC (Eli Blumenthal ‏@eliblumenthal)

Apple fans line up at the "Church of Apple" in New York to buy an iPhone 6s Friday.

Above: Apple fans line up at the “Church of Apple” in New York to buy an iPhone 6s.

Image Credit: Eli Blumenthal ‏@eliblumenthal

San Francisco

Screen Shot 2015-09-24 at 11.58.58 AM

Above: (Justin E. Harris @envisionwithj)

Periscoper Justin Harris reported that around 16 people were already camped out at the downtown San Francisco Apple Store Thursday night. Check it out here.

Boston

(Image: MacRumors)

Above: (Image: MacRumors)

Hamburg, Germany

"Oh man wie arm ist das denn. Wegen einem Telefon?" Daniel Knott ‏@dnlkntt )

Above: “Oh man wie arm ist das denn. Wegen einem Telefon?” (Daniel Knott ‏@dnlkntt )

Sydney, Australia

Marcus Barsum waits outside the Apple store in central Sydney Thursday. Reuters/David Gray

Above: Marcus Barsum waits outside the Apple store in central Sydney Thursday. (Reuters/David Gray)

This buyer, a media exec in Australia, sent a robot proxy to wait in the line. (photo: Mashable)

Above: This buyer, a media exec in Australia, sent a robot proxy to wait in the line. (photo: Mashable)


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Apple Watch Displayed Beautifully with xylum’s Boldly Designed…

xylum’s elegant dock for the Apple Watch has cutting edge functionality with a modern and minimalistic look. A timeless design, machined from a solid piece of aircraft grade aluminum.

(PRWeb September 01, 2015)

Read the full story at http://www.prweb.com/releases/2015/09/prweb12935761.htm


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