Silly Season for Apple

by JDH on August 22, 2020

I’ll get back to a discussion of gold next week (which is doing great, thank you very much) but for today, let’s discuss the true “bell weather” stock of this crazy market: APPL – Apple Inc. made yet another new high on Friday.  How high can Apple go?  I have no idea, but if you want to draw silly Fib lines on a chart, it’s easy to make the case for $550, or higher.

Is this realistic?

In the “real world”, of course not.  Apple now has a market cap of well over $2 trillion, and is trading at a PE of just under 38.  That’s silly.

But in a frothy market, fundamentals don’t matter.

Only a few stocks are “on fire” and Apple is one of them, so if you are a money manager, you have to own Apple to keep up with the market.  But of course there is more to it than that.

The day traders also have to have something to buy, and when a big cap stock can go up by 5% in one day, Apple is a day trader’s dream.  At 2:00 pm on Friday, 2 hours before options expiration, Apple $500 calls (out of the money by over $2) were trading for 80 cents!  Of course, by the end of the day they had expired worthless, but there you go.

There is another factor at work here: Apple’s 4 for 1 stock split:

On July 30, Apple announced a four for one split of Apple common stock and trading will begin on a split adjusted basis on August 31, 2020.

If you are a small “investor” on the Robinhood or other trading platforms, this is great news, because now, instead of buying one share for $500, you can buy 4 for $125!  Brilliant.

No doubt the split will create more investor interest, and drive the price even higher.

So, if you have no thought for fundamentals, buy Apple.  Or buy Apple options.  Or do a covered write, or a butterfly, or whatever one does in these crazy markets.

Have fun.

More next week.