Time to SELL SHORT Apple $AAPL vs $SPY
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Will 
AAPL fall all by itself? Likely.
WillAAPL fall relative to the 
SPX500? Much more likely.
Why?
Apple has reached extended valuation levels at a time when portfolio managers and indexers are not likely to do anything to adjust their positions going into year end.
Why sell now and pay capital gains taxes? Exactly, they wont sell now. They will sell next year and defer those capital gains for a whole year.
Why is Apple so overvalued?
1. Revenues are declining (year over year 2%)
2. Valuations are a 10-year peak levels with high PSR readings of 4.5x's, falling margins, lowest Free Cash Flow yield of 5%.
3. Debt is rising steadily to finance share buybacks
4. Share buybacks and a rising weighting in the
SPY SPX500 is forcing any new cash inflows into index funds into a disproportionate amount of AAPL shares
5. Sellers have been rewarded for "not selling" to rebalance their portfolios that are overweightAAPL up here.
6. Psychology and price momentum keeps the price elevated, but only for so long.
What you can see on this chart is thatAAPL has peaked in the October-November time frame and has traded off by 15%, 12%, 14% and 29% within 60 bars in the last 4 years.
I think the way to participate is with options - buying theSPY calls and buying the AAPL puts. The downside is 12% to 18% (average of the last 4 years decline in AAPL vs SPY) and possibly more.
What if it doesn't work? Then don't risk more than 1% of your portfolio on this idea.
Risk? 2% tight stop up to 5% loose stop. Half position risk at 2% and the other half at 5%.
Stay tuned!
Tim
Dec 5, 2019 11:09AM EST
AAPL fall all by itself? Likely.Will
AAPL fall relative to the SPX500? Much more likely.Why?
Apple has reached extended valuation levels at a time when portfolio managers and indexers are not likely to do anything to adjust their positions going into year end.
Why sell now and pay capital gains taxes? Exactly, they wont sell now. They will sell next year and defer those capital gains for a whole year.
Why is Apple so overvalued?
1. Revenues are declining (year over year 2%)
2. Valuations are a 10-year peak levels with high PSR readings of 4.5x's, falling margins, lowest Free Cash Flow yield of 5%.
3. Debt is rising steadily to finance share buybacks
4. Share buybacks and a rising weighting in the
SPY SPX500 is forcing any new cash inflows into index funds into a disproportionate amount of AAPL shares5. Sellers have been rewarded for "not selling" to rebalance their portfolios that are overweight
AAPL up here.6. Psychology and price momentum keeps the price elevated, but only for so long.
What you can see on this chart is that
AAPL has peaked in the October-November time frame and has traded off by 15%, 12%, 14% and 29% within 60 bars in the last 4 years.I think the way to participate is with options - buying the
SPY calls and buying the AAPL puts. The downside is 12% to 18% (average of the last 4 years decline in AAPL vs SPY) and possibly more.What if it doesn't work? Then don't risk more than 1% of your portfolio on this idea.
Risk? 2% tight stop up to 5% loose stop. Half position risk at 2% and the other half at 5%.
Stay tuned!
Tim
Dec 5, 2019 11:09AM EST
Note
Down 1% on the first day. 0.93% here at 11:08AM
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