Apple is now the ultimate traders' stock

As it becomes sensitive to news, sentiment and short-term trends, the tech giant is less suitable for buy-and-hold investors.

By MSN Money Partner Dec 6, 2012 2:36PM
Arrow Down copyright ImageSource, PictureQuestBy Greg Jensen, OptionsANIMAL


Apple (AAPL) shares collapsed again Wednesday. Various explanations have been offered: competition in the tablet market, a lack of impact from the iPhone 5 and profit-taking for tax reasons are among the most popular. 

I believe the last reason is the most significant. Apple has been the ultimate "buy and hold" stock for a long time. There are some significant long-term capital gains locked up in it. Uncertainty as to the tax rate on those gains means that even the most loyal shareholders are considering realizing some profit before year's end.


This is all very interesting and certainly worthy of noting, but of more interest to me is that the very nature of AAPL as a stock seems to be changing. It is becoming the ultimate demonstration of the market's herd mentality. It seems that whether it is moving up or down, there is no shortage of people saying that the move was inevitable. 

Conviction is strong from both bulls and bears. It has become the ultimate traders' stock. This won't last. One side will win out, but for now it represents significant opportunities. 

In the past it was difficult to pick levels. Any correction was small and short lived, without momentum. Since the April drop, however, a bottom has formed at around $525. You don't have to be a genius to see this on a basic chart.


This very transparency is what makes it attractive right now. Buying AAPL around current levels ($546.23 at the time of writing) gives an opportunity for a controlled trade, with a stop loss placed just below $500 to protect against a breakout and a target of April's high, around $630.


Of course, it isn't foolproof. You may prefer to wait until the year is over and profit-taking has finished, or wait to see support for a third time before concluding that a real bottom has been found. You may want to limit your potential losses by simply buying calls on AAPL. They are certainly cheap right now. January expiration $560 calls, for example, dropped around 45% yesterday to close at $19.15.


Whatever your preference, the fact remains that Apple stock is no longer a one way bet. It is possible to trade it with pre-determined levels in mind. This does raise questions for the long term. Could it be that AAPL is now behaving like a mature stock, becoming sensitive to news, sentiment and short term trends? Does this mean that growth is expected to stall? This could be so, but for now it seems that traders, rather than long term buy and hold investors are finding the stock attractive. It has become a traders' stock.

Tags: AAPL


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.