Through TheFly's Eyes: Apple Computer, Inc.
Between court disputes with France and the Beatles, Steve Jobs shuffling 10 million shares worth of his stock options and the company’s CTO departing, Apple Computer (AAPL) has made a lot of noise recently. But is any of it market moving or is the microscope just too focused on the Cupertino, CA, based technology company?
The ongoing dispute with France has interesting implications. With the French lawmaking body approving a copyright bill that would force Apple to break open its exclusive iTunes and iPod formats, the company must now decide whether to comply with the regulations or leave France totally. There is analyst speculation that Apple will choose to drop out of the French market rather than open its formats to competitors. Apple has not made an official decision yet, but did issue a statement, saying, “If this happens, legal music sales will plummet just when legitimate alternatives to piracy are winning over customers. iPod sales will likely increase as users freely load their iPods with 'interoperable' music which cannot be adequately protected. Free movies for iPods should not be far behind in what will rapidly become a state-sponsored culture of piracy.”
As for Apple’s other legal dispute, Apple Corps Ltd., which represents the Beatles, is suing Apple Computer for using the Apple name and logo in relation to music distribution, which breaks a previous agreement by the two like-named companies. According to Gene Muster, an analyst with Piper Jaffray, Apple Computer may be forced to pay Apple Corps between $50M and $100M to settle the dispute, which is thought to be more of a public relations mess than a harmful fine.
The news of Apple CEO Steve Jobs withholding 4.57M shares of stock to pay taxes is not in itself a terribly newsworthy event, except that the Street originally misinterpreted it to mean that Mr. Jobs sold a large stake of his shares in the company. In fact, Mr. Jobs did not sell any of his stake in Apple.
The final, and most recent, bit of news is the departure of Apple’s chief technical officer, Avandis Tevanian, from the company, which Apple confirmed to the San Francisco Chronicle yesterday. He is leaving on March 31, the same day as Jon Rubinstein, the senior VP of the iPod division. Mr. Rubinstein is retiring, but it is unclear what Mr. Tevanian is doing.
The effect of all of this on Apple, which is nearing its 30th birthday this April 1st, is that shares are virtually unchanged in mid-day trading, up only 19c to $59.70. The initial sector and market reaction to Apple appeared to be muted: Dell (DELL) was down just 5c to $30.05, while Hewlett-Packard (HPQ) was down 29c to $32.82. Meanwhile, the market was neutral to mixed, with the U.S. Federal Reserve set to announce its decision on short-term interest rates. Wall Street, understandably, was focused on the Fed’s decision and accompanying policy statement – a decision that has broader and more long-term implications for the economy and the stock market.
Apple’s option implied volatility of 42 is near its 26-week average. The company’s intra-day call option volume of 27,484 contracts compares to intra-day put volume of 10,382 contracts according to Track Data. Average option implied volatility suggests non-directional price fluctuations, notes our Options strategist.
Our Technical analyst provides us with another angle. Apple’s stock has taken quite a beating since reaching its parabolic peak (a trend that is just that, a parabola instead of a steady line) in early January of this year and is down some 33% since that time. The stock is trading in a bearish price channel (downward sloping) that suggests $57.48 (the lower limit of the channel today) is a reasonable downside objective. The stock has little support below where it is currently trading until $55.35. There is a strong layer of support here which was the breakout area for the big move up starting in October of last year. Our best guess is that there will be an attempt to move the stock if it hits this level and maybe before then. Why? Old resistance levels that become support levels (as this once was, now it has become support since the stock is trading above this level) generally test well. They provide an easy floor value that traders suspect will hold given the length of time the prior level held. As it turns out this support (then resistance, these flip names depending on which side of them the current stock price is at) lasted a few months so there is likely to be a sense that this is "firm footing". Trading stops (a price that if reached will elect an automatic sell in this case) will likely be placed just under this area, varying depending on the risk profile of the traders involved. Where could the stock go then? The bearish price channel itself is very wide ranging. The middle of this channel is today at $63.16 and the top or upper limit is at $68.73. Remember the channel slopes downward so these values over time get lower. At the $55.35 zone, the middle of the channel would be at $57.99 and the upper limit at $60.99.
Tuesday, March 28, 2006
Through TheFly's Eyes: Apple Computer, Inc.