APPLE and SEC

Apple rose today on weak volume to $89.87, up $1.90 and traded higher in the after hours to end at $90.02. The trouble with the market players right now is that they are still too complacent. Judging by the low volume activity in Nasdaq showed another up day on very weak institutional buying activity. In fact, weak volume means that some very "brave" bottom fishers are getting antsy and are nibbling at these seeming bargains for the fear of getting left behind. At least that is probably what the psychology is behind the market activity during a correction or bear market. I myself being a momentum trader, I know when to stay out and when to go full force into participation mode. I do not think this is one of those moments where anyone should be going into the market with their guns blazing. There are times to increase your wealth and there are times to protect your wealth. Protection and precaution is worth its weight in gold in terms of prevention of needless financial heart aches and broken dreams. I must also remind the market players that it is indeed options expiration week and a lot of volatility will be in force (not that it isn't volatile now). I believe today's action is due to hedging and protective call option selling activity which has the indirect effect of raising the common stock prices. We may see some deflationary action in terms of price in the coming week.

If you are trading Apple, you need a strong thesis or conviction in why you are in this particular stock. This stock on the surface has had tremendous appreciation over the past 4 to 5 years and has been one of the best performing stocks. It is also loved by the market place and the analysts are continually bullish on the prospects of this stock. The company is hitting on all cylinders and is slated to relase the iTV, iPhone, and the new Leopard operating system, which is creating quite a buzz. I myself am very impressed with the Apple products and own a Macbook Pro and several video iPods. However, most of the growth prosects of this company for the short term has been priced in and in the current environment where the trend has changed directions to the downside, many of those factors will not be the determinant factor in price appreciation. The one thing that makes me want to sell short this stock, and I am short right now, is that too many people expect this stock to continually out perform regardless of market conditions. I must remind you, that at crucial points in market turning points, most analysts and pundits are wrong and that the stocks with excellent fundamentals will succumb to the selling pressure eventually. So how do I know if I am not too early to the party? The simple answer to that is- I don't know. I just go by my research and my gut instincts based on my research, which has served me well in the past.

The real kicker in the equation that people seem to forget about Apple is that the options back dating scandal is alive and well and is apparently taking a turn for the worst. It is just that Steve Jobs (who I think is the most influential CEOs of all time, surpassing Jack Welch of GE) has done a masterful job of covering up this important dark cloud that lurks over this company. In addition, Pixar is also under investigation for options back dating by the SEC and again, Steve Jobs is in the center of this contention. In the latest 10K filing, Apple goes as far to admit that the SEC investigation into its options back dating may affect the company adversely and further restatements may be necessary. Please check this excellent link out http://www.macrumors.com/2007/02/05/apple-believes-sec-investigation-poses-risk/.

I don't know when, but I just don't think SEC is done with Apple and Steve Jobs just yet and any adverse or pretense of adverse events will tank this stock. http://www.macrumors.com/2007/02/16/sec-to-file-charges-against-ex-apple-execs-soon/

I think that Apple may even challenge the $93 mark this week but that is the point that I will be adding to my put positions. I just think that the combination of the subprime market woes and the SEC investigation issues is just too much downside risk for this market climate.

Please do your own due dilligence and as always, take care of your capital.