Apr 3 2020 - Apple Will Lead The Market Lower

Apple stock will likely test the December 2018 low.

Company announces all stores will remain closed through April.

Reduced earnings and multiple contractions should cause a move back to 0 level.

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The last 30 days have been a disaster for the global markets. The world is going through a financial shock that we have not seen in our lifetimes. The coronavirus has caused the world to come to a grinding full stop. I am writing this article because I cannot take any more financial analysts talking about the bottom being in and remain silent.

Apple (AAPL) is without a doubt one of the best and strongest companies on the planet. I am a big fan of Apple and one of the first to call for the stock to hit 0 3 1/2 years back on Seeking Alpha.

Here is why I think Apple trades back to 0

First off, the Bargain Hunter portfolio as of today is up over 33% YTD and 110% since January 1st of 2019. So, this opinion is not coming from a rookie.

Coronavirus has caused Apple to close all their US Stores till April 30th and most of their flagship stores across the world. This virus is a game-changer for the markets, and yet, I hear many pundits on the financial channels talking about a bottom being in? Are you kidding? This is a disaster for almost every corporation on the planet except Amazon (AMZN), Costco (COST), Walmart (WMT), Netflix (NFLX), and Clorox (NYSE:CLX). You want a portfolio? There it is.

In 2019, Apple did not grow earnings. The market expanded its multiple and the stock more than doubled from the December low of 4. What people need to understand is Apple not only doubled but also went up another to 7 on February 12th where it peaked. This final blow off rally happened when China was melting down with coronavirus.

People have lost their jobs, their 401Ks are decimated and many have not even looked at them yet. The other day my neighbor said and I quote, "I tell my husband not to even look at it." This market crash will affect people's behavior for years to come.

Forget about a growth scare, we are on the verge of a global depression and in my view, a severe recession is already upon us.

Let's look at a chart of Apple.

Does this look like a chart you want to rush in and buy when the world is on fire and people are dying by the tens of thousands? The answer is no, not yet. The law of gravity is too strong, the stock must go back and retest December 2018.

In November of 2018, the world went through a growth scare, remember? Let's use a little common sense here, OK. Throw fundamentals out the window, they don't matter right now. The markets now go to charts and levels of support.

I have been short Apple over the last 30 days and have been blown out of the water a couple times with various call spreads. I have made money and lost money. Try trading in another country when the market opens up limit down, the internet freezes, and you're not able to log on for a half hour. I can tell you this, it's a nightmare!

I spent the month of February and half of March traveling through the beautiful country of Portugal. My wife and I had plans to visit Spain and Morocco but after hearing of quarantine at a hotel on a Spanish island, we decided to lay low in Lagos. Lagos is a beautiful little beach town in the Algarve region, I highly recommend a vacation there.

During that period of time, I advised my Bargain Hunter members to go to cash or think about going short on February 24th. I felt like the markets were not taking coronavirus seriously.

Apple has been leading the market up on the rallies and down on the big sell-off days. Look for that trend to continue. The stock is now down nearly 0 from its high, but, in this trader's view, it has much farther to go.

Apple has huge recurring revenue that will keep the company afloat during this trying time. They can buy back stock but why would they do that right now when they can buy it back at lower prices over the next 60 days.

Here is another chart with several different areas of support for interested investors to view.

If one clicks on the chart above, you will find four different levels of support that I have drawn. Apple has already hit the one around 0. The next level of support will be around the 3 level. That is weak support in this trader's opinion.

I see the stock trading through that level on one of these big wipe out days when Mr. Market goes into depression. If 3 doesn't hold, then the next level is around 4 and then while you are down there, why not go to 0.

I am not trying to freak people out, but I truly do believe we will revisit the 2018 low. The market will get there by taking down the Fang stocks.

Today's unemployment number of 6.6 million for the week was brutal and yet the market rallied. The real number is likely 10 times that amount. The data will continue to tell the story.

The shutdown will likely go through May 30, not April 30. We have never been through anything like this before. These rallies are not sustainable, they are short covering events. Weak hands get crushed with margin calls, people get out of position and find themselves on the wrong side of the trade and guess what? This kind of whipsaw action will continue.

I have traded through the dot.com bubble, the financial crisis, and the flash crash. The government is doing a great job with all the stimulus, but trillion is not going to get it done. The only chance we have to stop the market from trading the S&P to 1,800 is a major infrastructure deal with bipartisan support.

Apple will be one of the last to fall and the first to rebound, but make no mistake, there is more pain to come. I am a trader that has had many failures and many successes, and I write this piece today to try and reach those investors that think this is the grand opportunity of a lifetime to buy.

My mother who is 75 years old tells me two weeks ago that she put K into the market. I asked her why she would do that without talking to me and she said, "the market dropped and I think it's a good time to buy."

If you're 70, now is not the time to buy any stocks. You need to wait for true capitulation and we only saw the first wave of it. These things take time, patience, and discipline. You will get your chance but not at 2,500 on the S&P.

For the novice out there, you must understand that when stocks rally up 18% to 40% or 100% in a few days or a week, that other people on the wrong side of the trade are losing a fortune. This is the ultimate shark tank people, you better be prepared and know what you are doing if you want to get into the deep end of the pool.

Conclusion

The world is in a crisis situation, our health, wealth, and peace of mind are being threatened by this terrible virus. Now is not the time to be a hero and think you need to put money to work. These 1,000-point rallies are short squeezes caused by price dislocations, and people shorting stocks at the wrong time.

Apple is a fantastic company with amazing products and they will come out of this crisis and thrive. Investors need to be patient, 0 is not the buy zone. I am not saying to short Apple, it rallies so fast, it will make your head spin and you will surely capitulate to the upside. That is precisely what has happened over the last 40 days.

The world economy has lost trillions and trillions of dollars. The retirement accounts of millions of Americans have been trounced and these people will not spend like they have in the past. People are now understanding how dangerous it is living paycheck to paycheck as millions of jobs have evaporated into thin air.

If you enjoyed this article and would like to know how I am making these kinds of returns, then I encourage you to join Bargain Hunter where I share my portfolio and many of my real-time trades in chat.

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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in AAPL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.