Apple [AAPL] stock on pre-iPhone tear, Yellen on deck

Apple CEO Tim Cook and red-delicious flavored Apple logo.
Apple CEO Tim Cook and red-delicious flavored Apple logo. (Composite by the author from Wikimedia images)

WASHINGTON, August 21, 2014 – Tricky but positive action rules trading this morning, with the Dow back above the somehow-magical 17,000 mark and the S&P 500 flirting with and occasionally exceeding another record. If this is a “bubble,” as the trading punditocracy has been calling it, somebody’s sure making the big bucks on the latest move.

Apple (AAPL) is plateauing a bit above the $100 per share mark today, having topped the century mark earlier this week for the first time after its big June stock split. September is Apple’s usual big product announcement month and expectations are high for a rollout of its new, allegedly bigger screen iPhone 6 models.

Apple’s current CEO, Tim Cook had hinted back in April that big things would be coming this fall, telling analysts, “We’ve got some great things that we’re working on that I’m very, very proud of and very, very excited about.” Now maybe we get to find out.

Rumors run high, the biggest one speculating on the long-predicted release of the alleged “iWatch,” based primarily, it seems, on the rollout of a new iOS 8 that will allegedly work on said watch as well as the iPhone and iPad. But they’re mostly just rumors, as Apple has a well-known reputation of taking out contracts on anyone, employee or supplier, who leaks any info to the press or anyone else for that matter.

Whatever the case with the iWatch, hope runs high for the new iPhone 6 or whatever Apple ends up calling it. The big deal is supposed to be a bigger screen that’s in the neighborhood of 4.7 inches or so. But the other big deal is the phone’s rumored sapphire glass touchscreen, which, the theory (and a good bit of the science) goes, is far more durable than Corning’s (GLW) Gorilla Glass. The latter is used in current iPhone models, but it still breaks, as many Apple customers will unhappily tell you.

But where the Maven thinks the sapphire rumors err is that they’re assuming an all-sapphire screen. That may eventually be in the offing. But right now, such screens are pretty expensive which may be a problem for Apple in the current competitive smart phone competition.

A better bet would be a Gorilla Glass screen with a sapphire laminate, something we explored in our article earlier this year on GT Advanced Technologies (GTAT), the Arizona-based toolmaker and manufacturer of synthetic sapphire. Apple is just about done building a big, new manufacturing plant for GTAT, and we don’t think Apple and GTAT are aiming to sell a lot of sapphire glass to Samsung any time soon.

More likely, we get sapphire laminate screens now, and then the full sapphire screens in a later model when the price of the artificial sapphire comes down enough to be competitive. Alternatively, maybe lower-end iPhone 6s get the laminate and higher end get the real deal.

In any event, the Maven is predicting that the all-sapphire environment is for tomorrow, not today.

Between the new iPhone and the alleged iWatch (or maybe even a new TV product), Apple should be fun for stock and option investors over the next few weeks as it frantically scrambles up. And down. AAPL stock is a mixed bag for many investors due to its volatility.

The Maven himself confesses to having lost more money than he’s made on the stock, embarrassingly enough, although his last move, trading the split, was decently profitable. If you’re game, fine. But be cautious and don’t bet the next month’s mortgage payment. In the market, there’s no such thing as a sure thing.

In other market-influencing news today, speculation builds towards Fed Chair Janet Yellen’s upcoming Friday speech to all the economists and money-heads attending the posh, annual 1% bash out in Jackson Hole, Wyoming. Who knows what Yellen will opine?

But to make things even more fun, her European counterpart, Mario Draghi—the closest thing 21st century Europe has to the legendarily difficult-to-interpret Delphic Oracle—will also hold forth, no doubt promising the world but delivering precisely nothing.

What short sellers and bears might be looking for in Yellen’s remarks would be any hint as to just when the now-divided Fed (based on yesterday’s Fed minute release) will actually start to jack up interest rates. As with last year’s “taper tantrum,” firmer news on this might now lead to what the news-talk blatherers are now dubbing “rate rage.” In other words, Taper Tantrum 2014. Frankly, who cares?

The press and the HFTs will all call it something so they can grab headlines and make money off any reaction on rates. But it could be that this time around, there might be little if any “rate rage” at all.

Speculation about what both Yellen and Draghi will say will drive markets for the rest of today and early tomorrow. If things hold true to form, we expect an up day for the rest of today, maybe even an up morning tomorrow, and then a sinking spell later Friday for those investors who don’t want to risk being fully invested and subject to weekend surprises from Russia’s Vlad the Impaler and/or the mass-murdering Islamofascist crusaders who run Hamas/ISIS/ISIL.

To wrap things up, we spotted comments on CNBC this morning from Nobel Prize-winning money expert Lars Peter Hansen, who correctly observed that the current U.S. obsession with constructing bewildering thickets of financial regulations “is hindering already ‘stunningly sluggish’ U.S. economic growth.”

The reason for this? All the red tape “has led to caution among investors,” which has, at least in part, led to this so-called recovery’s historically anemic excuse for growth, post-2009.

Hansen, a University of Chicago economist, elaborated further to CNBC, noting

It has been a stunningly sluggish recovery from this recession. I really think in the U.S. at least there has been too much attention devoted to monetary policy as the key to fixing up problems, going forward I think the challenges we face in financial market oversight uncertainties are potentially much more critical…. I think the uncertainty [of] institutions on what kind of regulatory environment there is going to be in the next few years is contributing to caution, and contributing to caution in a way that is going to be counterproductive. I think clarity in policy is really critical in terms of getting investment stronger.

Good luck on that, professor. “Clarity in policy” is something that’s been in astonishingly short supply since 2009 in this “most transparent” Washington administration in the history of the universe.

Today’s trading tips:

First, a bit more on Apple and related matters.

When we wrote our earlier article on GTAT, the stock was cheap. But we predicted a big ramp up would happen in that stock when people finally realized what GTAT’s big patron was really up to. We were eventually right about that, and collected a nice profit on GTAT’s run-up, although we got out a bit too early.

Right now, although a couple HFT nutcases may still have some fun with it in September, we think GTAT is overpriced at least for now, so we’ll stay out at least for now. Maybe later.

And again, Apple (AAPL) might be good for a trade here, but that stock is never for the faint-of-heart, so be careful. Often with AAPL, it’s better to use long-term in-the-money calls to play the action, but don’t mess with these either unless you can afford to be in front of your computer screen all day like the Maven. Otherwise, pay a full-service broker to babysit a position like this.

Aside from this kind of stuff, we’re planning mostly to sit on the sidelines today, perhaps dribbling a few shares here and there into our portfolios from our commission-free Schwab ETFs, which seem to be tracking the action pretty nicely these days.

We are riding a big bet on oil refiner Valero (VLO) that we got into prematurely in June just before it got smashed. We doubled down close to its bottom, and have been riding it up lately, already nearing a 10% profit in less than 3 months. We’re not sure how much further this one will run, but it was oversold which is why we did what we did.

The refinery space, we think, should do nicely at least near term, with domestic oil prices trending down as buckets of the black gold rain down on our fortunate country from various shale formations.

Just to keep our hand in with regard to the oil majors, we’ve also established a small position in Marathon (MRO), which hasn’t done much yet.

We’ve been in and out of Hess (HES) and would get back in again if it would stabilize somewhere, but maybe it won’t. The company will be splitting into at least two components shortly, and these splits almost always work out well for the splittees and their shareholders as such moves “unlock value” as Carl Icahn loves to say.

We’re also riding the Bank of America (BAC) “A” warrants (BAC/WS/A in Schwab, different symbols at other houses). We’ve been riding them mostly down as we started buying our position, bit by bit, when news of BAC’s rumored $17 billion mortgage-related settlement with the Feds leaked out.

The injured warrants had been creeping back up over the last few days on no news, so we figured some kind of final settlement was about to be announced. And indeed, we weren’t disappointed, as the Wall Street Journal published a long piece in this morning’s paper, indicating that the settlement would be A. somewhat smaller that $17B; and B. That even this number was only about half cash, with the rest in credits and other bookkeeping mumbo jumbo.

That report and those that followed elsewhere this morning (WSJ is behind a pay wall), goosed BAC a bit. It’s currently up 25 cents per share. Meanwhile, the A warrants are following, more or less, making our whole position modestly profitable for the first time since we completed our purchases. Those green numbers look swell on the screen, for sure.

There’s still some speculative juice in the A warrants, we think, so we’ll ride them for awhile. Currently, they’re just under $7 per warrant, and they don’t expire until 2019, sort of like a very long term option. Play or not as you wish. But you’re always exposed to headline risk on this one, as this administration is very fond of extracting fines and punishments from America’s banks and largest corporations (like FedEx) to supplement all the money they’re stealing for us.

We’ll be back tomorrow afternoon, most likely, after the oracles delivery their mysterious prognostications from the wilds of Wyoming.

Disclosure: The author currently has positions in Bank of America “A” warrants and in Marathon Oil.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17