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.”

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.

Tech

An editor for ‘The Verge’ took a job with Apple — and didn’t tell his employer

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An editor for The Verge took a job with Apple — but didn’t tell his employer. 

Chris Ziegler, a founding editor at the tech-focused digital media publication, began working for Apple in July 2016. Ziegler did not tell The Verge, where he had been a deputy editor, and continued to be employed by the website, according to Editor-in-Chief Nilay Patel, who posted a note to The Verge on Friday afternoon.

Patel said that the website had become aware of Ziegler’s dual employment and investigated whether he had been involved in any coverage of his new employer. Strangely, Patel said that the website had not heard from Ziegler in August or September. Read more…

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The Verge’s Deputy Editor Chris Ziegler Was Secretly Working for Apple for Two Months

Late this afternoon, Nilay Patel, the editor-in-chief of The Verge, published a post detailing the circumstances around the departure of Chris Ziegler, a founding member of the site. As it turns out, according to Patel, Ziegler had been pulling double duty as an employee of both The Verge and Apple.

Read more…


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iPhone 7 Problems Exposed, Is Apple Flying Or Dying?

The iPhone 7 handsets are pivotal phones for Apple. Tim Cook and his team are taking a number of gambles with the hardware, the software, the distribution, and its corporate attitude. What are the road signs towards Apple’s future that can be found inside the iPhone 7 family and where do they point to?


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Former Apple Engineers Introduce ELWN, the World’s Best Earbuds…

ELWN FIT Earbuds launch on Kickstarter and answer the question – “How can I work, play, and live my active lifestyle without a thought about charging or adjusting my wireless earbuds?”

(PRWeb July 12, 2016)

Read the full story at http://www.prweb.com/releases/2016/07/prweb13546320.htm


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Facebook Challenges Apple For Control Of The Next Major Battleground

The news that Facebook is working on encrypting end-to-end communication in its chat client is another sign that messaging is the next major battleground online. End-to-end encryption is increasingly being seen as a desirable product for many users of IM platforms, and the addition of this feature should be seen as Facebook emphatically planting a flag to say ‘we are here in this space and we plan to dominate it’. Apple needs to watch out.

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