Author Archives: Scalper1

Apple Investors Should Brace Themselves: Monday Event Could Be A Yawner

You probably won’t need to hold onto your socks during Apple ‘s ( AAPL ) spring product launch event on Monday. That’s the message from Wall Street analysts trying to set realistic expectations for what’s likely to be announced. The tech press has been reporting for weeks that Apple will unveil a new 4-inch iPhone, a new 9.7-inch iPad and new Apple Watch bands at the media event Monday at Apple’s headquarters in Cupertino, Calif. “While we expect to see several ‘under the hood’ improvements across devices, we are not expecting the same exuberance as last year when Apple shared final details of the Apple Watch,” Oppenheimer analyst Andrew Uerkwitz said in a report Friday. “Moreover, we worry investors will find the next several Apple media events underwhelming.” Uerkwitz rates Apple stock as outperform with a 12- to 18-month price target of 120. Apple shares rose a fraction to 105.92 on the stock market today . Apple has a bunch of innovations in the works for release in 2017 and 2018, he said. They include possibly an iPhone with an OLED display, a virtual reality headset, 360-degree camera, and a hub for smart-home products using Siri, Uerkwitz said. Any surprises at Monday’s event likely will revolve around pricing for the new products and possibly the Apple Watch or the introduction of new MacBook or Mac Pro computers. Apple CEO Tim Cook also is likely to use the event as a platform to reinforce the company’s argument that the federal government has overstepped its legal bounds by demanding Apple hack its iPhone security. Apple and the Justice Department are set to square off in a federal court on Tuesday in a criminal case where the FBI wants Apple to develop software to bypass its password security measures. Because Apple gets most of its revenue from the iPhone (68% of sales in the December quarter), most of the attention Monday will be focused on the rumored iPhone SE. The new 4-inch iPhone will replace the same-size iPhone 5S, which was introduced in September 2013 and is still on sale. The new model is expected to sport an A9 chip, NFC technology to enable Apple Pay and a 12-megapixel, rear-facing camera to bring it up to snuff with the other iPhones. But it reportedly won’t have a pressure-sensitive screen like the premium models, the iPhone 6S and 6S Plus, which have 4.7- and 5.5-inch displays, respectively. The SE will be targeted to customers who prefer a smaller size handset as well as emerging markets because of its expected lower price. The iPhone SE “is likely to be a low-volume (for Apple) product that has minimal effect” on its earnings and stock price, Pacific Crest Securities analyst Andy Hargreaves said in a note Thursday. Hargreaves is bullish on Apple with a price target of 127 because of likely growth in the iPhone 7 cycle starting this fall. “Investors are not excited about this new phone,” Rosenblatt Securities analyst Jun Zhang said in a research note Tuesday. Zhang is “bearish” on prospects for the new iPhone SE because he expects that its price will be similar to second-hand iPhone 6 handsets in large emerging markets. “Second-hand iPhone 6’s are sold online at $350 in China, which we believe will be same price range of the iPhone (SE),” he said, adding that the price difference is such that many users will go with the larger display phone. Apple faced a similar pricing problem when it launched the iPhone 5C handset alongside the iPhone 5S. The 5C was priced only $100 cheaper than the 5S but had a cheaper-looking plastic casing. Sales of the iPhone SE are likely to be “ modest ” at 10 million to 15 million units annually, RBC Capital Markets analyst Amit Daryanani said in a research note Thursday. Still, the new phone could provide a buffer ahead of the launch of the iPhone 7, he said. Component suppliers likely to benefit from the iPhone refresh cycle include Jabil Circuit ( JBL ), Broadcom ( AVGO ), Amphenol ( APH ) and Texas Instruments ( TXN ), he said. Also Monday, Apple is expected to unveil its third-generation 9.7-inch iPad Air, which will be given similar functionality and accessories to the 12.9-inch iPad Pro. The current iPad Air 2 was launched in October 2014. The iPad Pro with its Smart Keyboard and Apple Pencil debuted last September. But the tablet business has been in decline at Apple and the new iPad is unlikely to change that, analysts say. “We do not expect the updates to materially change our outlook for iPad units, which seem likely to continue declining through fiscal 2016, but at a moderating rate,” Hargreaves said. Apple holds an IBD Composite Rating of 66 out of a possible 99, factoring in earnings growth, stock performance and several other metrics. Chipmaker Broadcom gets a 98 , Amphenol a 91 and Texas Instruments an 84. Jabil is not currently highly rated by IBD, with a Composite Rating of just 47.  

Too Far, Too Fast? Market Professionals Reflect Evolving Smart-Money Opinion

How good have their forecasts been? Figure 1 is the record of five years of daily forecasts for ProShares UltraPro Dow30 ETF (NYSEARCA: UDOW ), an ETF that holds derivative securities which are intended to magnify the daily percentage price changes in the DJIA index by a factor of 3 times, either up or down. Figure 1 tells what the Market-makers daily hedging-implied forecasts for UDOW over the past 5 years have produced as net profits for a wide range of imbalances between upside and downside prospects. Those imbalances are measured by the Range Index [RI] which tells what percentage of the whole forecast range lies below the market quote at the time of the forecast. Figure 1 also indicates how often the forecasts were able to produce a profitable outcome, operating in a realistic, time-constrained portfolio management discipline. Click to enlarge So what did MMs see earlier, see now? Here is the current picture of probable coming UDOW prices, along with similar once-a-week forecasts over the past 2 years. Figure 2 (used with permission) The vertical lines of Figure 2 are the price range forecasts for UDOW implied by the MM community’s hedging actions to protect firm capital exposed during buyer~seller balancing to “fill” volume trades. The forecast of 5 weeks ago was from a then-price of $46.54 and a Range Index of -11. Now it has a quote of $64.72 and a Range Index of 57. A week ago the price of $59.49 carried a RI of 51. Figure 1 suggests that buys of UDOW at today’s RI level of 57 in the past might produce only a +2% payoff from here, instead of the upwards of +12% that had been experienced by -11 Range Index forecasts earlier. The +2% prospect is reinforced by the row of data in Figure 2 as the actual payoff experience achieved in 108 of the 1261 days for which UDOW forecasts were available. Forecasts that had RIs of around 57. The current forecast is more optimistic than past experience; it projects a potential gain of +5.6% Odds for reaching the current payoff prospect remain high, with priors producing a profit in 84 of every 100 among the 108 experiences. The fact that gains better than three times the earlier forecast’s average payoff already have been experienced makes one wonder if the “other shoe might drop” any time now and markets might start to back off. To ease such concerns, it is appropriate to know as UDOW prices were rising during this past week, its MM expectations rose faster. The outlook gains pulled back RIs which on a couple of days were at 68. Continued rising expectations, at a gain rate faster than prices, will put strength under a continued market price rise, albeit at a slower pace. Failure to do so may signal weakening market enthusiasm. We’ll have to see what happens. It can be monitored on blockdesk.com., along with expectations for the VIX index and VIX-based ETFs. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.