John Bell, 19th March 2013

At 0607h, 19th March 2013, I received the following e-mail purportedly sent by our mysterious “John Bell”

***************

Apple Computer (Nasdaq:AAPL)

The once darling of Wall Street, Apple has fallen back to earth. Ticking off a high of near $700 just 6 short months ago, the stock came all the way down to under $425!

That’s a 40% correction folks.

Of course as I was penning this Alert, Apple put on a little rally. Regardless, it is still trading at a PE of 10.

The company has a cash and investment hoard exceeding $137 billion, and will add $42 billion in earnings to that in 2013!

Apple and Exxon flip flop one another for the title of most valuable company on earth!

That cash hoard is important to my trade thesis. According to Howard Ward, chief investment officer at Gamco Investors Inc., the company will outline what it plans to do with that HUGE pile of cash by next month.

He also said that, β€œWe’re going to get an announcement from the company as to how they intend to reallocate some of their cash. They will put a floor under their stock at a higher price than it is today.”

That’s a highly likely outcome in our opinion.

So, why the decline? First, everyone and their mother was long the stock. There were literally no more buyers.

Add to that the negative press lately, mostly centered around Samsung and its competitive smart phone line. We think rumors of Apple’s demise are grossly exaggerated. Apple is an innovator, and to count them out is likely a mistake.

On top of the pending decision on the cash hoard, rumors abound that a new, lower-priced iPhone is in the works, with a complete redesign of the casing using composite materials.

Meanwhile, Apple laptops and desktops continue to sell strongly, and they are just FAR superior products to the competition. No matter where I am in the world, the Apple store is ALWAYS packed…always.

Technically speaking we see chart support at the $425 area, which has already been touched. Apple rallied $11 on Friday as I was penning this alert, which was further confirmation that we may get the bounce I’m anticipating to the $500 area, where a nice gap exists in the chart.

Gaps always get filled, it’s just a matter of when.

Also, we have some nice divergences in key technical indicators. See the chart below. MACD was making higher lows, while the stock was making 52 week lows. This is non-confirmation and a sign that we could be entering a trend change, which in this case would indicate a move back up. Friday’s bounce may be the kickoff to that trend change.

How to Play it

Traders could simply purchase Apple stock around $450. After Fridays small pop you may wish to wait a couple days and see if we get a slight pullback for a bit of a better entry, anticipating a move to $500 in the next couple of months. That’s a gain of roughly 11%, not too shabby.

OR, for more risk-tolerant traders you could look at the May 2013 $475 calls. On Friday those calls closed at $11.05. A move to $500 by expiration on May 17th will put these calls at $25, which would be an increase of approximately 125%, over 10 times the potential gain in the stock.

If the move to $500 happens quickly, volatility will create an even greater premium on these options.

As I’ve said before, options are risky – you have to get not only the direction correct, but also the timing. Buying the stock is a safer move, but at a price hovering around $450 per share, even 10 shares will set you back $4500.

A gain of 11% on that, after commissions will net you roughly $500. Buying 1 option contract will cost you less than one quarter the cost of 10 shares of stock, yet stands to net you close to 3x the return if we’re right. It’s your choice.

If you don’t understand options, or if you can’t watch a screen all day to be able to catch the quick moves you should just trade the common stock!

Conclusion

To summarize… We anticipate that Apple could trade up to $500 per share sometime between now and mid-May. There is a gap in the chart at $500, which is why we set our initial target at that price.

The stock could go higher, and depending on how it looks if/when we hit our initial target, I will update and reevaluate.

Good luck!

John Bell

***************

As a preliminary matter, I am starting to have very serious concerns about our mysterious “John Bell”, if the above quoted e-mail was actually sent by him. Historically, “John Bell” has sent his e-mails out in the 0400 hour range; this was sent at 0600h. Also, typically, he usually has hyperventilating e-mails leading up to the big announcement of his “magic stock pick”. In this case, we were met by a distinct lack of fanfare: the parade marches through town without the band and nobody notices.

Also, it is an anomaly for “John Bell” to be making pronouncements of such mainstream companies as AAPL. He could not possibly move the market sufficiently with his meager group of victims to actually make any money banging the drum for an S&P 100 company.

Further, “John Bell” has demonstrated very erratic methods of analysis for any of his “magic stock picks”. In December of 2010, he was touting the benefits and strengths of the “margin of error” method identified and described by Seth Klarman; then he went through a fundamentals phase including the work of Joel Greenblatt on the “magic formula investing”; then he careened between technical trading and momentum analysis. He has now returned to technical analysis in attempting to explain why AAPL will gain 10% in the next few months. Let me be perfectly clear: technical analysis is nothing more than pure gibberish that can be roughly translated as “how to lose a lot of money very quickly.” Technical analysis is based upon the hypothesis that the market exhibits long-term correlations in the price movements. A multitude of studies have been published, and it is quite simple for an individual to verify this, that demonstrate the markets are correlated only over very short time periods, on the order of 15 seconds or less. No rigorous studies exists that would suggest technical analysis is usable for anything other than making the stock brokers rich.

As I have stated before, perhaps our mysterious “John Bell” would be far better off, and the SEC would not be on his tail, if he turned his considerable talents to identifying a successful investment strategy and applied that strategy religiously over the next ten years or so.

I hope that this helps.

Nathan A. Busch

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6 Responses to “John Bell, 19th March 2013”

  1. I was befuddled, too, by this email. What is in it for JB? Earlier he had said he was coming out with a more mainstream pick to make amends for his previous string of debacles. Well, this is the height of mainstream! And at a price upwards of 450 per share, how does he expect his penny stockers to buy a big chunk of Apple and ride the coming appreciation in its stock price?

    Mr. Bell we need penny stock tips, not such big ticket items. πŸ™‚

    • Dan and my Audience:

      If I were to assist “John Bell” in selecting a S&P 100 company to suggest to my readers, AAPL would be last on my list. According to my analysis, it is still over valued at $450.00, and any rise to $500.00 would be about $76.00 per share than this company deserves. However, given that Apple has, in my humble opinion, stumbled badly lately and has, at best, brought out modest improvements in already tried and tested technology, $450 would still be overpriced for shares in the company. To justify anything above $250 for this company would require cutting-edge technology and innovation. If Apple had announced that it actually possessed a working quantum computer, of course before Lockheed-Martin did so, then perhaps $450 might be a suitable price.

      Nevertheless, Apple is no surprise as “John Bell” would have it: every one and his mother owns this stock. If, as an investor, you had any fortitude about yourself, you would have bought Abbot Laboratories about a year ago on the notion that this company would split. Now, if you actually had steel in your spine, you would have bought Union Pacific about two years ago and Peabody Coal and Norfolk-Southern about a year ago. True titanium nerves would allow you to buy Teva and Cel-Sci now.

      However, if you want to be a weak-kneed wimp, just stick with Apple and Bank of America and listen to “John Bell”.

      I hope that this helps.

      Nathan A.Busch

  2. JB’s back suggesting that he has a short sell play coming up soon. He also suggests there are tax benefits that can be had by following this strategy. I am not savvy enough to explain the tax benefits, so if anyone wants to take this thread up, please do. Thank you.

    • Dan and my Audience:

      Since our mysterious “John Bell” is not honest about his “magic stock pick” SCAMS, then we have no reason to believe his claims as to the capital gains tax consequences of a stock short sale. Some simple understanding of stock short sales and capital gains taxes reveals that our “John Bell” cannot be trusted on this new SCAM. It is rare for a stock short sale to last longer than one year; thus, any gain would be taxed as income and not long-term capital gains. To effectuate a stock short sale requires that the speculator borrow the shares from a stock broker, sell those shares, and then at some time in the future purchase those shares and return title to the broker. The broker must have title returned to him at some point, even if the shares are worthless, because those shares are still on his books. Between the time that the speculator borrowed the shares and returns title to the broker, the speculator must pay interest on the value of the shares according to the contract under which the shares were borrowed. Typically, the interest is charged on the market value of the shares as at, or about, the date that the shares were borrowed. Since, according to “John Bell”, title to the shares is never returned to the broker, that interest must be paid ad infinitum. Also, if the company was paying a dividend on the shares as at the date of loan, the speculator must pay the full value of the dividend as well as the interest.

      Whilst I have not fully investigated the tax consequences of a stock short sale of a bankrupt company, here are some questions that I would put to my tax accountant before doing such a short sale: Do the stocks cease to exist or does the price merely go to zero as a result of a Chapter 11 Bankruptcy? If the first were to be true, then does the IRS consider this to be a “sale”. If a sale, then does a capital gains tax liability attache if the time between the date of the short sale and the date upon which the stocks cease to exist is greater than one year; otherwise, is the profit taxable as dividend. If the share price merely goes to zero, then does the IRS consider that to be a “sale” as well?

      Based upon his latest e-mail, it seems to me that our mysterious “John Bell” has taken a terrible tumble out of bed and bumped his head on the night stand. I cannot imagine anything else that would have caused his thoughts to become so addled.

      I hope that this helps.

      Nathan A. Busch

      • The other curiosity is: doesn’t selling short require a special kind of trading account in which one maintains a “hefty” minimum balance? John’s target audience for these picks isn’t a group that has a lot of disposable income and can afford a margin account (is that what they are called?). Since I am on John’s mailing list, i can say that. πŸ˜‰

        This latest email seems as odd for him as the one before it where he touted Apple as a solid buy.

        Go figure.

      • Dan and my Audience:

        Some brokers may require special accounts such as “margin” accounts to engage in stock short sales. However, my experience is that a margin account allows one to “borrow” funds from the broker for the purposes of purchasing stocks. As to the size of the account, you are spot on: typically, brokers will not even consider a person for either a margin or short account unless the person has put a considerable amount of collateral on the line. Not the stuff of small investors like you and I.

        Yes, this does not seem like our mysterious “John Bell”.

        I cannot get a sense of what has happened to him.

        I hope that this helps.

        Nathan A. Busch

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