Trade Hacking

The Trader's Edge


Even the iPhone can’t save Apple

Apple (AAPL) did it! It sold 13 million new iPhones in the first weekend – beating expectations and sales numbers from the launch of the last version of the phone.

But even these numbers aren’t enough to impress investors. And there’s a good reason why.

Wall StreetShares of Apple are down $1.41, or 1.3%, to $113.25 Monday as investors react to the weekend sales statistics of the new iPhone. Bulls were hoping strong sales of Apple’s latest smartphone model would be the catalyst to get the stock working again. Guess not – partially because the numbers aren’t as solid as they sound.

Certainly, the market is down, too. The S&P 500 is off even more, 1.7%, as investors readjust their valuations. But that’s kind of the point. Apple’s product cycle is supposed to be what makes the company – and stock – immune from the vagaries of the rest of the market.

On its face, Apple’s news looks solid. Apple says it sold 13 million units of the new iPhone 6S to its faithful consumers, beating the 10 million launch sales of the iPhone 6 in 2014, says Nomura analyst Jeffrey Kvaal.

But there’s the problem. The number is a bit distorted because this year 12 global regions including China were included in launch, versus 10 last year, says Abhey Lamba of Mizuho. China wasn’t included at launch last year.

Seeing the shares fall following the seemingly better-than-expected smartphone sales is a disappointment for the legions of investors bullish on Apple. Many looking for some good news – anything – to get the stock moving higher again. Shares of Apple are down 15.9% from their high this year – an even worse showing that the market. The Standard & Poor’s 500 is down 11.1% from its high.

iphone_6sThe iPhone weekend sales numbers underscore – too – how Apple’s reliance on an aging product line for a majority of its profit is tricky as the smartphone market matures. While consumers may eventually upgrade their devices, many will delay the upgrade until they need to be replaced. It’s similar to the maturation that has occurred in the personal computer market.

The number exceeded many analysts’ estimates, including a 12 million forecast fromS&P Capital IQ’s Angela Zino. Timing will also help Apple as many of the launch weekend sales will fall into the fourth quarter this year, versus the third quarter of last year, Lamba says. Plus, Apple plans to ship new phones to 130 countries, up from 115 last year.

Analysts remain hugely bullish on Apple stock. The average 18-month price target is $146.76. Lamba, though, is much more cautious saying the stock’s target is $125.

“We continue to like the company and its strong franchise but not that it is primarily a smartphone company, which could make it tough for the stock to work in light of tough compares,” Mizuho says.

Source:  USA

Understanding volatility

You’ve probably heard that the market’s are “more volatile” or expect there to be increased “volatility” in the markets. The pundits on TV talk about how the “fear index” or VIX (volatility index) has doubled since the market highs. What does this mean and what is the VIX?

The VIX is a composite index based upon a complex set of calculations on the S&P 500 (SPX) options prices. This is an important concept to understand as it’s not based upon the S&P 500 index itself, but on a variety of the underlying index’s options.

One key component in how the SPX options are priced includes how volatile the S&P 500 will be between now and when the options expire. If volatility is expected to be high, then there are additional premiums added to the price of the options to make the risk/reward better for those who are taking the sell-side of the option, otherwise there is no market.

Now the VIX itself is all over the map as far as value, so the best way to look at VIX is over a few periods, so we look at the VIX over a five and nine period time frame using moving averages. See the chart below:

vix cboe


Now some people look at crossovers for this, I don’t.  I like to see the slopes of the moving averages in the same direction to determine where volatility may be going.  What makes the VIX measurements interesting is that they have an inverse relationship with the underlying market.  Let’s take a look at two specific examples of VIX and the SPX (notice the inverse relationship):

vix spy

As you can see, the slope of both lines of the VIX were headed up and the market pulled back and based. Then in mid-July, the VIX averages were headed down and the market rallied. During the end of July to the middle of August, we had the moving average flat, and that showed in the action of the market as there was a very tight consolidation range.

The big move, and mini-crash of August 24th was well broadcasted as on 8/20/15 the moving averages were trending up, even on 8/19 they were, plus there was separation in the moving averages that showed that this move could have some strength. You easily could have shorted below the channel on 8/20 and made a lot of money four days later.

After that, there was an immediate bounce effect, and in early September, the VIX averages were pointing down, and the SPX started to base and be less volatile.

The VIX can be a great predictor of price action. Don’t discount what it’s telling you. Volatility can help you a lot, especially if you’re an option or spread writer. Keep an eye on the VIX.

Trade Hacking © 2015 Terms of Use - Privacy Policy - Disclaimer - Contact Us