A NEW PROBLEM FOR AAPL: IT IS NOW OFFICIALLY A “CATCH UP” INVESTMENT
Be forewarned: The message that I deliver is generally mundane in nature. I bring no delusion of sudden wealth being created in the equity markets as I have found that when the words sudden and wealth are combined, the word catastrophe is not too far behind. The only way to become wealthy in the markets is through a steady regime of controlling risk. Everything else you are being sold is poppycock that deserves no place other than stuck to the bottom of your penny loafers.
There is a grand delusion among a majority of participants on Wall Street that buying into under-performing names during spectacular bull runs similar to what we are experiencing currently is an organic means of diffusing risk. The catch up trade in popular, under-performing names has been a favorite among both amateur and professional investors since the first ticker tape began stringing along the emotions of money hungry young men. Much like cutting profits short, adding to losers or following group think over the proverbial cliff, the catch up trade is a ticket to miserable existence on Wall Street.
In the here and now, we are in the middle of an extremely powerful rally that has caught both professional and retail investor flat footed. There are those who are desperate for an opportunity to catch up but are afraid of the risk of buying into the momentum driven leaders of the current rally. Human nature, being as it is, loves the feeling of a bargain when all else seems to be selling for a premium. It doesn't hurt when that bargain just so happens to be one of the most widely held, popular, cult-driven investment names of the past decade.
AAPL is going to act as a gravitational moron beam over the next few months attracting the type of capital that is toxic in nature. It will be capital that has either A) missed out on this rally and is now looking for a seemingly low risk proposition to catch up OR B) capital that continues to be infatuated with the story, prestige and fundamental ratios that have been cited for the past 250 points down. In other words, the dumb money.
Furthermore, AAPL has another problem that acts as an impediment to its future appreciation. By missing out on one of the most spectacular rallies to grace the pocketbooks of Wall Street participants over the past six months, it has inextricably placed itself in a position of great difficulty. Odds are that by the time AAPL is granted the footing to put together any type of sustainable bottom, the markets will not be as strong as they are now. They will likely, in fact, be in the midst of a consolidation, in the best case scenario, and a correction in the worst case.
An unpleasant market landscape when paired with the phenomenon of fear driven investors trying to play catch up in the most widely held company of the past decade makes for a slippery market slope to ascend. The ability to gain substantial footing simply isn't there in the face of such circumstances. Both the participants in the trade and market itself are conspiring against the stock price. A situation with negative expected value.
I have called AAPL how I see it, both bullish when calling for new all time highs in the stock in June of last year and bearish when I turned on the stock in October in an article titled AAPL: Warning Shots Have Been Fired. To quote from the "Warning Shots" article:
It will be THE stock that hurts investors the most due to the unwavering, cult like love that has developed for the company. When the tide does inevitably turn, investors will be so blinded by that love that it won’t matter how many times they get kicked in the stomach, slapped across the face or raped by a pack of wild dogs, they will keep coming back for more.
We are now in the slapped across the face phase. Rape by a pack of wild dogs will come during the second half of the year. Stay tuned.
