At least once a day, I am asked what I think about the future of Apple (Nasdaq: AAPL)shares. Most of the time I decline to go into a detailed answer, as there are many folks out there who follow the shares a lot closer than I do. But when you follow stocks and the markets for a living, you simply cannot avoid having an opinion on the personal technology giant that's been the most dominant single stock for the past couple of years.
Now, there's been a whole lot of action in Apple shares during the past couple of months, and for cultish bulls of the stock, that action has been quite painful. Since reaching an all-time high of over $702 midway through September, shares of the mighty Apple have plummeted. In fact, from that September high through the mid-November low of $522.62, Apple fell more than 25%, putting it decisively in bear market territory.
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Since those November lows, traders have been returning to the stock, and shares have come back with a vengeance, surging nearly 13% in just the past seven trading sessions. The big price swings in Apple have made the stock a dangerous one for traders, as it's left many trying to figure out what's coming next.
These days, there seems to be two distinct camps on Apple. There are those who think the shares could sink to below $500 before the latest selling ends, and those that say Apple is a screaming buy right now.
So, which camp is right, and how should traders play it?
The way I see it, the Apple bull trade is the one with more potential going forward. I say that because, first off, the stock has already seen the landslide of selling that amounts to a "run for the exits" overreaction. The 25%-plus sell-off tells me that the shares have already seen their biggest downside.
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Second, the recent buying in the shares -- largely due to renewed optimism over the so-called "fiscal cliff" that caused the entire market to move higher last week -- is a good sign that Apple shares have been oversold of late.
Finally, the shares are swiftly approaching their 200-day moving average at $594.25, and if we see Apple breach this level, we could see the buying really ramp up into what I suspect will be a combination of a fiscal cliff relief and a Santa Claus rally.
For all of the above reasons, I think Apple is a stock to buy now, and here are two ways (one conservative and one aggressive) traders can take a bite out of this Apple.
For more conservative traders (i.e., traders who don't want to use options), now is a time to buy the stock in anticipation of a year-end rally.
Action to Take -->Buy Apple at the market price. Set stop-loss at $543.72. Set initial price target at $645 for a potential 10% gain in five weeks.
For more aggressive traders who feel comfortable trading options, there are numerous high-reward possibilities with a bullish Apple call play. There is a lot of volume and open interest in Apple calls, and that makes them relatively easy to buy and sell.
Here I like the Apple Dec 600 Calls. These out-of-money calls surged midway through Monday trade, but Tuesday they pulled back to attractive levels.
Action to Take --> Buy Apple Dec 600 Calls at the market price (currently trading at $12.65). Do not use a stop-loss. Set initial price target at $19 for a potential 50% gain in three-and-a-half weeks.
-- Jim Woods
Jim Woods does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.