I’ve been writing about Apple for a long time now and only 2 weeks ago I predicted the stock would quickly make a 10% run. As I write it is up 9.1% in pre-market 12/2/2013. Rather than wait for it to hit 10%, I thought I’d bring this to the fore today, because it illustrates nicely some important principles.
I’m not an Apple bull. Star stocks like Apple are dicey at the best of times. The history of bubble stocks goes back literally centuries as my search and annotation of classic texts on stocks from around the turn of the19th century illustrate. Here are two.
This predicted particular move, which was almost as ridiculously well timed as my recent call for a crash on Tesla’s share price illuminates many lessons. but Here are 5.
Lesson 1 is: When normal metrics break down, you are at the mercy of words. People simply can’t stay away from volatile stocks. Speculators play them until they are ruined or so emotionally battered they avoid the whole market in its entirety. This is a double loss as proper investing is benign. While many a broken dream of financial security has been left in the wake of crashing bubble stocks, hardly anyone refuses to play. If there is a single contrarian bone in your body, you should stay away or at least make sure these kinds of stock only represent a tiny part of your portfolio. Risk does equal reward in the main but at a certain point risk gets so high that it is almost certain you will lose. When normal metrics break down, you are at the mercy of words. However you cannot be a “chicken little,” fundamentals are for the long term, technical are for the short term. Trading is about looking at the technical indications of the near term or the now. If you must trade then you have to look at what the market is telling you this moment.
Lesson 2. You have to trade what you see not what you believe. I might think Apple is doomed to be a $250 stock, but if my technicals say, “this stock is going up” there is no point arguing. If you don’t like it, don’t trade it. (I don’t trade Apple)
Lesson 3. In trading, it is the scale that is as important as direction. Sometimes the market will tell you, “shut up, I’m thinking.” The energy and volatility of the stock price will fall and the stock will trade in a narrow range. At this point you can prepare for an eventual big move in one direction or another. Such a big directional move gives you time to join it. You don’t have to be on a hair trigger. It’s a good way to trade. Apple just provided such as move as predicted by my article of two weeks ago and is up over 9% in a few days.
Lesson 4 Do not fight a trend, follow it if you love it. Apple is definitely on a trending tear right now. If you have the nerve for trading Apple and you like the stock, the trend is certainly calling out, “up.” However never buy a trend in a trading position you don’t like the stock. Remember, if you think it’s good, it isn’t, if you know it’s good, it is.
Lesson 5 All you have to know is whether the market is going up or down. I don’t like Apple stock. I see the company’s lunch getting eaten around the world in shopping mall’s from Tokyo to Mumbai, Dubai to London. But I might be dead wrong. I do know however is “the market” has been amazingly strong and that short of a reversal of fortune caused by a Fed “taper” or an unexpected event, this rally is going to roll. Can Apple fall in such a bull market? Leading up to Christmas and positive retail news on many fronts Apple will be supported by a strong updraft of market and seasonality? Apple might as well be the Nasdaq market, so if the bull continues to charge it is highly likely to rise also.