What Does Apple Have in Store for the 3G iPhone?

There's no bigger story on the Internet than the arrival of the 3G iPhone. Gizmodo reports that the launch date of June 9th has been confirmed by "very" reliable sources. The 3G iPhone will be introduced by Steve Job's during his keynote at Apple's 2008 World Wide Developer's Conference (WWDC). Great! But most of us already knew that. Contrarians speculate that this date is bogus, because the phone hasn't been cleared by the FCC yet.

What about something we don't know like what features, other than AT&T's3G HSDPA networking, will come with the Jesus phone? Some of the things circulating the rumor mill include; Haptic interface, GPS with a kick-ass navigation application, monster battery, and a rainbow of color choices. Possibly the biggest draw, not necessarily a device feature, is a subsidized iPhone. The things we know will be include are the 2.0 version of the OS and a new SDK that 3rd party developers are using to create applications, that will be sold through the new App Store.

Well, all this hype might be setting us up for a real downer.Piper Jaffray’s Gene Munster advised investors on Tuesday to keep their expectations for the 3G iPhone “in check.” Gene thinks the iPhone will be practically unchanged from the current iPhone, in both look and features.

Could this be the reason Apple took such a pounding in the market today? AAPL finished the session down 7.71 ( 4.15%) to 178.64. Doubtful, when you consider the Fed minutes reporting a weakening economy and with oil surging to another all-time high, up $3.80 a barrel. All in all Apple's losses were on par or fared better than other tech darlings such as GOOG 549.99 28.61 (4.94%), BIDU 354.99 17.14 (4.61%), and RIMM 132.89 5.71 (4.12%).

Apple, Market Technical Analysis - Capital Preservation Time

More selling is likely in the near term as the markets continue to consolidate. On the flip side, the markets are getting very oversold. So, my recommendation is to be patient when when you have such opposing indicators.

Click on the image to see expand it to full size.

Apple is also in consolidation mode as the price is converging on it's uptrend. The uptrend line poses resistance at approximately 187.70, with good support at the 20 day SMA at 180.87 and the 20 day EMA at 179.52. I expect AAPL will test resistance today, let's see if it has the legs to turn it into support.

It wouldn't be prudent to take short positions here, because of the oversold indicators. And new longs are not apparent as well, we are in limbo. As pessimism ramps up, we need time to let things settle. Now is the time to sit on the sidelines and wait things out. Capital preservation time.

Apple, Market Technical Analysis - Battle for the 200

In order for this market to advance, the Bulls need to take control from the Bears by advancing both Nasdaq and the S&P 500 above their respective 200 day moving averages. This is historically the line of demarcation. When markets rise too quickly, they often fail at the 200. This time, it looked as the we might have a better shot.

The Naz had already captured the 200 day moving average last week, which was at 2417. And now it was time for the S&P 500 to follow suit and take control of its 200 DMA at 1327. And the S&P 500 made a valiant effort going into mid session, advancing all the way to 1440. The Bulls look like they had finally seized control of both markets.

Apple (AAPL) on the other hand was showing some weakness, advancing early then retreating. AAPL and the entire tech sector showed overall weakness, nothing specific, just profit taking after a good run up. AAPL finally got into sync with the indexes and topped out at nearly 189. But the Bears wouldn't be such push overs. The combination of overbought conditions and negative divergences on the 60 minute charts was too much to overcome.

Then the trading programs kicked in selling was triggered. Both indexes pulled back to just a sliver under their respective 200 DMAs nearly unchanged, the Naz settling at 2516.09 -12.46 (0.50%) and the S&P remaining above its previous close to 1426.63 +1.46 (0.09%). Apple's weakness on the other hand, magnified the pullback, and ended down at 183.60 -4.02 (2.14%).

The Bulls aren't done by any means. One would think if this market were in trouble, it would have failed badly. But that wasn't the case. Besides, it's normal for markets, after a good run, to lose some steam at the 200s. The longer term charts provide a rosier picture where bullish patterns are forming, suggesting the markets will move much higher. But first they need a little more selling, which would help reset the oscillators, provide a bit more consolidation and recharge the effort to move through the 200s with force, and put the Bears into hibernation.

The market internals provide supporting evidence that this move down was not so bad. For example there were far more new highs than lows on the NYSE, and more and more stocks are putting in new highs since this uptrend started several weeks ago. The other tell is that the volume of the selloff today was much less than the volume during the advances last week.

So if the selling continues, we need to take notice of what the support levels are below each market. If we violate those levels, then the story changes, and the 200s become much more difficult to breach. Look for support at the 200 and 50 day exponential moving averages (EMA). For AAPL, price support is in the 182-183 range.

Update, Support Levels: Tuesday, May 20 @ 10:46 AM

I wanted to note some support levels that traders should keep in mind as they navigate the markets over the next couple of days seeking out opportunities to take positions.

The S&P 500 has support at the up trend line at 1405, and it also has the 200 day EMA at 1407. If we fall below that, there's the 50 day EMA at 1383. The Naz 200 day EMA is at 2459 and the 50 day EMA at 2412.

The Dow 200 day EMA is at 12816 and the 50 day EMA at 12721. I don't particularly favor sighting the Dow, as it has less relevance to AAPL than the Naz and S&P 500.

Keep these levels in mind when considering a position. If we bounce off these levels, that may present an opportunity to take a position. But don't go wild here, I believe there's still some selling left in this market.

-zach

Sunday Morning at the Boylston Street Apple Store

I'm not one fore crowds, that's why I passed on the grand opening of Apple's largest US store last Thursday. So, I decided to head on over this morning. And what a beautiful morning it was!

My buddy Jerry and I got there early because we thought the store hours were 8 AM to 11 PM, 7 days a week. That's true, except for Sundays, when they open up at 9 AM. So we took advantage of the time, went to Starbucks, and snapped off a couple of pictures of the store front. The facade is incredible, as it appears to be floating, suspended by several massive laminated glass beams that extend to the top of the building and over.

We walked around the corner to check out Tech Superstore. They were tucked away in typical Newbury Street style, they're obviously not the early birds that Apple is. If you recall a previous post, the founder and President of Tech, Michael Oh, was the guy who planted the T-shirt under the Apple Store foundation, and chronicled the building of the store on his blog Birth of an Apple Store, using time-lapsed photography.


So after we finished our Grandes the store was about to open, so we positioned ourselves in front of the doors to make sure we were the first ones to enter. A crowd started to form rather quickly gathering behind us. Upon entering the store, you are overwhelmed with this incredible glass column wrapped DNA style with a magnificent spiral glass staircase.

I went over to the stair case and peered straight up to the sky. I'm told that the roof has as lawn and garden. We weren't permitted to go up there just yet, maybe next time.

So, the first floor was all Macs. On the right were the desktops, in power order. First the Mac Minis, then the iMacs, and in the back of the store was the big iron, the Mac Pros. As you followed around to the left, there were the laptops, lined up in descending power order, from the 17 inch MacBook Pro in the back corner to the MacBooks near the front of the store. On the second floor are the iPods and iPhones flanked the sides, with every conceivable accessory for Macs, iPods and iPhones along the back.

On the third floor was the Genius Bar, one-on-one stations, software and books. There's an elevator next to the Genius bar so you don't have to haul your Mac up the stairs. Boy, these guys think of everything.

I snapped this picture of the floating Apple logo, and caught the entrance to the Prudential Center across the street. We spent a fair amount of time speaking with the employees and managers, and marveled at the simplicity and elegance of the store layout. Well, that was that, both Jerry and I had to leave prematurely, because we both had Sunday morning kids sporting events to attend. It was one of the few times I have left a Mac store empty handed.

Apple Planning Massive Rollout of 3G iPhone, SDK 2.0

I'm surprised that Apple's recent barrage of deals among carriers around the world has not gathered more notice. It appears that the impact of the new SDK, App Store and the 3G iPhone will be bigger than anyone is prepared for, I believe it will be disruptive, seminal, historic.

Look at the deals that have been put together in just a few short weeks, it's dizzying. The iPhone is currently in the US and 3 countries of Europe, by the end of the summer it appears Apple will be operating on every continent in a total of 46 countries!

The potential market in with current operations is approximately 150 million. With the new deals Apple has sealed, they have increased their potential market to nearly 600 million! Currently the iPhone enjoys a 3% penetration into the markets in which it is being sold, or about 4.7 million iPhones. If you project that out, we may be talking over 18 million iPhones by the end of this year! We haven't even talked about China Mobile and India's Bharti Airtel yet! They should account for another 500 million potential buyers alone!

You may look at that and think at first glance, that's pretty good growth. Think about this for a moment, this has to be conservative, we're assuming static penetration of 3%. The rate of market share will increase as well, especially when you consider the attention Apple will get at the Beijing Olympics. I believe Apple has a plan to leverage the Olympics in coordination with this global rollout, to make an impact that will eclipse the Super Bowl ad of 1984.

Let's assume Apple will increase their market penetration by 50%. I believe this is conservative. That would translate to another 9 million phones by the end of this year, for a total of nearly 27 million phones by the end of 2008. So, Apple put out the number 10 million in 2008. Zach's prediction? 20 million. Are we witnessing another Black Swan?

Zach's Asset Allocation Strategy

It's impossible to conjure up a generic asset allocation strategy for someone without knowing their tolerance and capacity for risk, their short and long term goals, and the time they have to dedicate to managing their money. So I'm not going to try to do that. Instead, I'm going to describe my strategy of asset allocation and you decide if that might work for you.

My strategy is partly based on my fundamental investment philosophy that states, preservation of capital comes first, achieving maximum profits second. It's also based on a variant of a strategy described in the book "The Black Swan: The Impact of the Highly Improbable." It's a New York Times best seller, written by Nassim Nicholas Taleb.

A Black Swan is a highly improbable event that has three characteristics: It is unpredictable, it has incredible impact, and after it happens we invent a reason for it that makes it seem less probable. The success of Apple, with the return of Steve Jobs was a black swan; as was 911. According to Taleb, black swans are endemic throughout our world.

Taleb describes a strategy for investing that relies on this principle. And that's to take 90% of your assets and put them in the most conservative investment vehicles possible (treasuries, bonds, etc.), then take the remaining 10% and invest small portions into a number of extremely risky stocks or ventures. And then let the black swan emerge. Of course there's a chance you may never hit the jackpot, but you won't lose anything either.

Well, that's a bit extreme for me. While I want to maximize the potential to grow my assets, I need to balance that with protecting what I've managed to save for retirement. So, I've simply tweaked Taleb's allocation between the conservative and risky investment piles, and taken a more traditional approach of diversification within each pile. My allocation percentage is 80% conservative, 20% speculative.

Yup, the old 80/20 rule. Also known as the Pareto principle, which states that for many events, 80% of the effects come from 20% of the causes. Just like in business, 80% of the sales persons comes from 20% of the clients. Well, in my portfolio, 80% of my growth will come from 20% of the assets.

The conservative portion of my portfolio is invested in a mix of index funds, EFTs, treasuries, and real estate. The securities sit in a retirement account, for me that's a SEP IRA. I've chosen the mix of funds based on my risk profile. The plan is that as I get closer to retirement, I'll re-allocate the securities into more conservative choices. This generally means buying into a greater percentage of treasuries.

In my speculative portfolio I trade stocks through a brokerage account. I use margin to some degree, when the risk-reward ratio is favorable, but for the most part I limit positions to the available funds in the account. My goal is to diversify the investments in this account, but not to the detriment of making profit. My trading style is to take profits quickly, and when this account grows bigger than my 20% allotment, I move the excess into the IRA.

Now this brokerage account requires a significant amount of effort because I swing trade. So, the technical analysis required to manage the trades and mine opportunities can be significant. But I do it because I'm good at it and it's fun. Besides, it provides me with an endless number of subjects to write about in this blog.

Pre 3G, Apple (AAPL) Technical Analysis

Many wonder if the expected 3G iPhone has been baked into Apple's price. I'l have to say no. Apple has regained all this ground on the basis of their fundamentals and outstanding Mac sales, not the expectations of the new Jesus phone. I believe 200 is the correct price sans the 3G iPhone. The new iPhone, along with all the recent world-wide carrier deals, should bring Apple much higher.

Now for a technical analysis of a critical battle for both Apple and the Nasdaq (Naz), the 200 Day Moving Average (DMA).

Yesterday Apple (AAPL) led the Nasdaq with an initial charge at the 200 Day front. And although this isn't Apple's fight, as their 200 DMA is well behind them, Apple and the Naz share common interest in advancing through this level. For Apple it's strong price resistance, a remnant from a discouraging battle lost back in early January, which led to the infamous slide to 115.

This was the Naz's first try at a break through the 200 (2517 for the Naz), and first attempts at 200 DMAs rarely succeed. Apple has been a powerful force lately, but couldn't provide very good front line blocking this day because it had its own demons to contend with, being severely overbought (RSI >70) and strong price resistance in the 192-193 range. And don't forget, the Bears have a lot of skin in this game, they realize that a break through the 200 would be a major victory for the Bulls and will result in a surge of confidence that the Bears may have no defense in the near term.

As the day wore on, the Naz looked like it might do it, as it had climbed all the way to a high of 2528, with pretty good volume. But the Naz couldn't pull away from the 200, as the gravitational forces were too strong. By early afternoon "Big Guy Sell Time" was upon us, that's when all the Movers and makers (MMs) come back from lunch (approximately 1:35 PM). They had seen enough, yanked their toys from the sand box and went home.

AAPL led the "Big Guy" selloff, the rest of the Nasdaq soon followed

AAPL and the Naz both plunged for the remainder of the session, until they both landed on their respective support levels. For AAPL, that's the 186-187 range (established last week), and for the Naz it's 2500. The 2500 level had previously been strong resistance for the Naz over the past 8 trading sessions, but with today's break through it has flipped to become solid support.

So, will today be they day the 200 DMA falls? Or, will the Naz and Apple regroup, recharge their batteries, and put together a collective surge tomorrow? Truth be told, I'd rather go into the weekend with the Naz breaking though the 200 DMA of 2517, and close well above it, and for AAPL to also break through it's resistance range of 192-193 and close well above that. This would convert these levels from resistance to support. From there, we can continue the advance.