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Ever since I recommended buying Apple (AAPL) stock at $131, I have been a big Apple bull. Long before it was popular, I was writing that Apple stock can go to $1,000.
My analysis leads me to believe that there is about a 25% probability of Apple stock falling by about $100 in the near term.
Siri Novelty
When iPhone 4S was introduced, Siri was a novelty. The novelty resulted in extraordinarily strong sales. Siri helped Apple dethrone Samsung (SSNGY) as the world’s largest smart phone maker. Samsung phones run on Google (GOOG) Android. Apple also passed LG which is now the third largest supplier.
Like all novelties, the novelty of Siri is beginning to wear off.
Most investors, as well as most analysts, are highly inductive, i.e., they think linearly contiguous to the present state. Because of high inductivity, most analysts are not taking into account the impact of Siri novelty wearing off in their estimates.
Apple is followed by a large number of analysts and their collective high inductivity makes it difficult for them to change their estimates. As shown in the diagram, higher the inductivity, more difficult is the change.
Trading Pattern
An analysis of trading patterns, similar to what Apple is experiencing at this time, shows that Apple stock price is vulnerable. Trading patterns also show that smart money is slowly trimming positions in Apple.
iPad 3 Introduction
There are persistent reports from a number of sources that iPad 3 will be introduced in early March.
Apple stock price has traditionally shown a pattern of running into big announcements and backing off after the announcement. ‘Buy the rumor sell the news’ has historically been true for Apple's stock price.
It is always best to trim into strength rather than panic selling when the stock falls hard. This is one of the bedrock principles of my trading discipline.
About Me: I am an engineer and nuclear physicist by background, have founded two Inc. 500 companies, and have been involved in over 50 entrepreneurial ventures. I am the Chief Investment Officer at The Arora Report, which publishes four newsletters to help investors profit from change. Please feel free to write me at Nigam@TheAroraReport.com.
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Full disclosure: I, my hedge fund, and Arora Report subscribers are long Apple. Subscribers to ZYX Buy Change Alert have been given a signal this morning to take profits on a 5% tranche on Apple at $525.
