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.


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


Here's How 3 Badly Chosen Words Turned Disaster Relief Triumph Into a Public Relations Nightmare

It’s a lesson many large companies, most notably BP, have learned the very hard way. You might do everything right during a crisis, but a badly chosen sentence can make all your efforts worthless, at least as far as public perceptions go. The federal government learned that tough lesson again as it sought to help devastated Puerto Ricans survive after the destruction of Hurricane Maria.

The current hurricane season should confirm our worst fears about climate change, but also our highest hopes about our government’s ability to respond to natural disasters. Twelve years ago, when Hurricane Katrina devastated New Orleans, some government policies hampered relief efforts. When the civilian government asked the military to help out, paperwork held up responders for four days. And ordinary citizens eager to lend a hand were told to stay away.

The Feds learned from the past. This year, they watched the weather and submitted the necessary requisitions for military assistance well in advance so no one would have to wait while a request was approved. This time, helpful citizen volunteers were encouraged to pitch in, leading to the famous “Cajun Navy” rescuers after Tropical Storm Harvey. The multiple disasters of Harvey, Irma, José and Maria caused unimaginable devastation on American soil. That’s especially true in Puerto Rico, where the entire island still lacks clean water, electricity, food, and roads. But the Federal Emergency Management Agency (FEMA) is working with local governments as never before to alleviate suffering and help people survive.

It should have been a public relations win for an administration that could use one. But it all came crashing down when Acting Secretary of Homeland Security Elaine Duke said this during a TV interview: “It is really a good news story in terms of our ability to reach people and the limited number of deaths that have taken place.”

Duke was strikingly lacking in emotional intelligence, but she wasn’t wrong on the facts. People who’ve had no electricity for a week, can’t get diesel to run their generators, are running out of food and can’t go find more because of thigh-high putrid water in the streets certainly need more help than they’ve gotten so far. But given the storm’s magnitude and the fact that the nation was already recovering from two massive hurricanes before it hit, the response and the relatively low death toll have both been impressive. If only she hadn’t said those three little words: Good. News. Story.

When CNN played the clip on the air for San Juan Mayor Carmen Yulín Cruz, her understandable response was outrage. “Damn it, this is not a good news story! This is a people are dying story,” she said. “This is a story of a devastation that continues to worsen.”

Duke, to her credit, tried to make things better by heading to Puerto Rico where she reviewed conditions on the ground and walked back her earlier statement that she was “very satisfied” with relief efforts. But meantime her boss was on Twitter, lashing out at Cruz.

Predictably in our divided, cantankerous nation, commentators from the right and left began piling on the invectives. And so what could have been an inspiring tale of horrific devastation followed by effective and well-organized rescue efforts devolved instead into hostility and name-calling. All because of three words spoken off the cuff, and chosen without sensitivity. There’s a lesson there for every leader.


GoPro camera takes us into space on back of a test rocket, and it’s beautiful



Thanks to NASA and companies like SpaceX, amazing footage of rockets traveling into space have become fairly common. However, a new video shot with the GoPro Hero 4 emerged Wednesday that is particularly stunning, no matter how much space footage you’ve seen

The crystal clear, high definition video, recorded from the perspective of the GoPro strapped to the side of the rocket, shows the 20-foot tall SL-10 rocket’s take off and flight into near space, traveling at 3,800 miles per hour and reaching an altitude of about 75 miles. 

It’s then that the most beautiful footage is revealed as the rocket floats in space with the Earth in the background. Shortly thereafter, we travel back down to the planet as a parachute brings the remaining rocket component softly back to terra firma. Read more…

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Why Pinterest forces you off its mobile site and into its app

Pinterest’s product lead for growth Casey Winters speaks at VentureBeat's Mobile Summit (2016).

Ever had services like Yelp and Pinterest mercilessly boot you off their mobile site and force you to download a native app whether you want it or not?

Pinterest’s product lead for growth, Casey Winters, can tell you why that happens because he’s “the asshole that makes Pinterest do that,” as Winters himself put it at VentureBeat’s Mobile Summit conference.

Winters’ argument is pretty simple: After an A-B test, “you can basically see where you get more engaged users and more revenue over time.” Defying the logic of some incredibly frustrated users, Winters found that aggressively promoting Pinterest’s native app and limiting the mobile site’s functionality for some users ultimately left the social network with more loyal users and thus, more money.

Here’s the explanation Winters shared at the event, trimmed just a bit for clarity:

So, I want to talk to you guys about the mobile equation — or, the mobile Web to app handoff and tradeoff. So, Mike [Ghaffary, Eat24’s CEO] talked about knowing that customers of his company are 10x more valuable than they are on the Web. How do they know that? They know that because of their mobile equation.

But before I get into that, I want to ask a question: How many of you have gone to a mobile website only to get a full-page ad that says to download an app instead? [hands raise] How many times did that piss you off? Okay, well I’m the asshole that makes Pinterest do that. The reason I can do that is because I know the answer to our mobile equation.

What the mobile equation asks is simply: What’s going to make me more money, or make my company have more engaged users? Pushing someone to use the mobile Web experience I created, or to go further and try to get them to download that app?

And, there’s a really easy way to do that: You just do an A-B test. Some people come to your mobile website, you tell them to download the mobile app, and you don’t allow the mobile Web. And for some people, you just go through the mobile Web experience. And you cohort those users, you can basically see where you get more engaged users and more revenue over time. So we did that experiment at Pinterest. And what we found is similar to Yelp, that, even though we had way less users download the app than go through the mobile Web experience, they had activated at a 3x higher rate.

So, that’s a pretty easy experiment, right? But there’s a lot of complicating factors here. It depends on how good your current mobile Web experience is. It depends on how good your current mobile app is. It also depends on how good your sign up flow on your mobile app is. And lastly, it depends on how good your actual app interstitial is. We did this mobile equation and said: “Okay, well we activated at 3x the rate, but what that actually means when you get that decreased conversion is that a mobile app user is worth 1.2, versus a mobile Web user who is worth 1. So, once we learned this, we said “how can we make that equation bigger for us?”

So we took every step of that funnel and we just tried to improve it. So we did probably 15 iterations on a mobile app interstitial, increasing the conversion rate to the mobile app every time, almost. We also took a look at how could we optimize our mobile sign up flow. If people are landing from something specific on mobile Web — like they’re coming from SEO — can we show them that level of specificity as soon as we show them the app instead of going through a generic sign up form? All of these things increased mobile app conversion, which increased our mobile equation, tilting toward the mobile app.

If some of you are dependent on Google as a source of traffic, you’ll probably be aware that they’ve announced that if you have a mobile app interstitial, you’ll no longer be considered “mobile-friendly.” And what that means is long-term they will probably rank you lower on mobile. So, what we were able to find is that we could just make our interstitial a header which you could scroll right past, and see the content, and that fits within Google’s guidelines. It’s maybe skirting around it, but it fits within their guidelines today… The next thing we did is maybe going a little bit further is, if you click on anything on the mobile website, we will actually take you to Google Play or the App Store to get that download. And, that also gives us more information about what you care about when you open that mobile app for the first time.

…When you look at the process of downloading an app, it takes time. People go and do other things. So what we did, once we took you to the App Store or Google Play, is we reloaded your browser with a reminder that you went to go download the app. So it says, “Thank you for checking out the Pinterest app, click here to sign in.” That also increased the benefits of the mobile app for us.

Another thing that you need to think about, if you’re looking at your mobile equation, is it might be different in different landing pages. It might be different in different countries. We find that in Germany, the mobile equation is totally different…

You can answer the question right now if it’s better to optimize for a mobile app experience or a mobile Web experience. You don’t have to take it as strategic — you don’t have to take it on faith that this is where the company is going. So, a couple of things to remind yourself … learn your mobile equation, do that experiment, figure out every step of that flow, and see if you can optimize it to improve it…

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FanDuel acquires AlphaDraft to get into esports

This room is filled with people who would potentially love to play daily-fantasy esports.

Big companies are starting to see a lot of potential to make money in esports.

A day after DraftKings announced it’s expanding into esports next month with daily-fantasy games for League of Legends, competitor FanDuel is doing the same through an acquisition. The company has purchased the daily-fantasy startup AlphaDraft, which debuted earlier this year to provide a FanDuel-like experience for multiplayer online arena battlers and shooters. We’ve heard rumors of this acquisition for a few weeks — although AlphaDraft was also hearing offers from Yahoo Fantasy and even DraftKings.

Fantasy sports is a multibillion-dollar business, and daily fantasy is pushing that revenue to record highs. At the same time, the popularity of pro gaming is on the rise — and so are its earnings. FanDuel and DraftKings obviously both see this as an opportunity to get in on the ground level of what could turn into a mammoth industry over the next decade.

Former NBA Commish David Stern tells me that FanDuel has acquired @AlphaDraft, which he is invested in

— Darren Heitner (@DarrenHeitner) September 24, 2015

As we pointed out in our story yesterday about DraftKings’ esports ambitions, this acquisition by FanDuel is likely a move to ensure its revenues have a market that it can grow into.

From VentureBeat

Gaming is in its golden age, and big and small players alike are maneuvering like kings and queens in A Game of Thrones. Register now for our GamesBeat 2015 event, Oct. 12-Oct.13, where we’ll explore strategies in the new world of gaming.

Traditional sports are massively popular right now — professional football in particular has probably never had the level of engagement that it has today. But concerns around the safety of contact sports, along with a generation of parents who are trying to grind their children into superstar with the 10,000-hour rule, has youth participation in sports like football, soccer, and basketball noticeably falling off.

If research keeps revealing that football and other physical activities will lead to brain disease, interest in these sports could erode with the participation levels over the next 10 to 20 years. And that’s where the rise of esports could make up the difference.

Tens of millions of people have tuned in to watch events like the finals for Counter-Strike, Dota 2, and League of Legends. Every competitive-gaming genre is seeing year-over-year growth in terms of viewership. Marketers and sponsors have already taken notice, and that has the esports business on a trajectory to reach more than $ 465 million in revenue by 2017. But fantasy esports could have the potential to push this market to $ 1 billion and well beyond.

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Hackers turn Square hardware into device to steal old credit card information



Just because the Square Reader is new doesn’t mean it isn’t susceptible to the same scams as old school ATMs and credit card readers.

Three recent Boston University graduates are preparing to publicly present research that demonstrates how to hack Square’s mobile payments hardware. The research is set to be shown off at the The Black Hat Security conference in Las Vegas this week.

The team said it discovered a way to steal credit card information using a modified Square magnetic stripe reader.

By tampering with the magstripe reader, the team was able to turn Square’s hardware into a credit card skimmer, a device that can be used to steal credit card informationThe modified reader doesn’t work with the proprietary Square app, but it could be used to steal credit card information using a custom-recording app, according to the team behind the hardware hack Read more…

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