by Rick Ackerman, Rick’s Picks
Don’t take your eyes off this stock if you want to understand how short squeezes work. This one, involving as it does the shares of the most valuable company in the world, is guaranteed to be spectacular.
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It is a textbook case for several reasons:
1) the biggest institutional investors on the planet own AAPL up to their eyeballs;
2) they are determined to lighten their positions ahead of potential earnings pain from the coronavirus; and,
3) after hanging tough through one of the steepest selloffs in history, they are not about to bail out bears with ample supply until the latter have driven the stock well above $300 or even to new record highs.
Notice that the chart shows a $326.25 rally target that would become an odds-on bet if AAPL blows past the $306 midpoint Hidden Pivot.
If and when the stock achieves those heights, you will notice that nearly everyone – investors, pundits, and news media – will have forgotten about what was troubling Apple in the first place. Recall that the company announced a couple of weeks ago that supply chain disruptions caused by the pandemic would take a heavy toll on earnings. This was no exaggeration, considering Apple’s assembly operations are concentrated almost entirely in China. Investors reacted appropriately by marking down shares by 20% in the space of a week. Now, powered by a short-covering panic, the smart money has recouped more than half of the loss and could conceivably get all of it back.
What Warning?
If AAPL gets within $10 to $15 of the record high $328 achieved on January 29, it will be as though the company’s revenue warning never happened. Even better for big players seeking to lighten their load, once AAPL seems comfortable above $300, many institutional investors who have been eager to buy the stock or augment their holdings will think they are getting a bargain when it pulls back for a day or two. With these things in mind, we shouldn’t disdain the possibility that AAPL could achieve new highs. If it does, expect the rally to drag the broad averages along with it. Thus will DaBoyz have leveraged a single stock to resurrect a bull market that many gave up for dead at last Friday’s shell-shocked lows.
Read this article at Rick’s Picks website.
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