Follow Up on AAPL

Click on Chart to Enlarge

I thought I'd give a little more info on AAPL. First off the prior post was not a suggestion to short it. Often times after a big run a good short will turn up, but that is not my focus here. It is simply that most traders and investors have a much harder time knowing when to sell than when to buy. So looking at this stock it looks to me like a time to sell if you own it.

Earnings is coming up next Monday I believe. So entering into it now could be bumpy. But I wanted to give a little background on the sentiment backdrop and see the likelihood of a big move on earnings.

First the stock has basically held support at the breakout, particularly after a move up today. The volume seems very weak on the breakout, particularly considering it has just moved to new all time highs. So bulls still have control, but I view it as quite suspect.

The chart above (from SchaeffersResearch) shows a rush into near expiration put options last week. From a contrarian point of view that would seem bullish.

Click on Chart to Enlarge

This chart shows the open February open interest of calls and puts. So most of the puts are at strikes at or just below the most recent base area, and within range of being in the money if AAPL were to fall 10-20% in the next few weeks. However, the chart above doesn't show strikes above $200 and I don't know why. Because call open interest is heavy right at the money and just out of the money as shown in the chain below. So, I don't know why Schaeffer's is not showing all that in the chart as well. Factoring this in, it appears the heavier bets are actually on the call side here which would not be as bullish as the pictures above may paint.

Click on Chart to Enlarge

Now probably of more immediate importance is the short interest situation on AAPL. The short interest ratio (days to cover) is only 0.9. So that means that all the short shares could be bought back very quickly. That is one key metric for seeing whether a stock has explosive potential on earnings. If there is a lot of short interest and the stock has great earnings, and particularly if this pushes it to all time highs, then the shorts will have to cover or get killed. So that can make for a big move up. Not so in this case. Also, only 1.8% of the float is short which is small as well.

Looking at analyst ratings can also be a way to gauge sentiment and factor into the direction of the stock over the course of time. If many analysts rate the stock a hold or sell, then an upgrade will typically cause the stock to advance on the news. However in AAPL's case, the buys and strong buys best the sells and strong sells 36 to 1. Almost all the buys are strong buys. So there is not much risk of an upgrade boosting the shares, but there may be a much higher risk of a downgrade dropping the shares.

So to sum up, the sentiment backdrop looks skewed to the optimistic side (which you would expect in this case). But this actually may be a hindrance to the stock because of lack of structural fuel for a further rally. It is typical for AAPL to move 5-10% on earnings, but I don't see particular risk of a real big move up on the earnings. But price is the bottom line, and until it does something wrong like close back below the breakout point of the base, then I certainly can't say with any conviction that it is topping right here.