Good morning,

Markets are called higher this morning. This is what's happening today:

  • Optimism US lawmakers will reach a budget agreement this month;
  • S&P cut Greece to selective default and a report today is forecast to show the euro area’s economy shrank in the third quarter;
  • The Chinese government is allowing insurers to invest more heavily in banks and analysts said the first meeting by the ruling party under China’s new leadership signaled more spending on urban development;
  • Economists predict the European Central Bank will leave its benchmark interest rate unchanged at 0.75% today;
  • LG Electronics Inc. slid 1.7% in Seoul after it was fined by the European Union over price-fixing on now-obsolete cathode-ray tubes used in televisions and computer monitors. Samsung SDI Co., which was also fined, dropped 1.6%;
  • 10-year Italian debt is yielding 4.441%, 10-year Spain is yielding 5.382% and 10-year Portuguese debt is yielding 7.391%
  • Brent is trading at $108.81/barrel
  • Gold is trading at $166.98/ t oz;
  • Apple closed the session at $538.79

Today I'll dedicate the blog to Apple. Apple suffered the worst fall in 4 years yesterday after it closed the session 6.4% down at $538.79/share. This was mainly due to a 'classic technical breakdown.' There is an appetite for traders to purchase puts on Apple. This means that traders are betting the price will go down and hence cash in on the option when it is in-the-money. And know this. When traders buy puts to push the price down, THE PRICE GOES DOWN! Although, these instruments do have a short term effect on the share price, once they expire and the price would have adjusted, it wouldn't be a surprise if these same traders start buying call options, betting the price will go higher. Traders don't care about what the company is about and what it is doing. They probably never even opened the accounts of Apple or read a reseach report. They are just interested in making money in the immediate short term. For traders, these instuments are influential but for investors who hold the stock, they should look beyond traders who play around with the price and look how the share price will perform in the medium-long term.

Another reason for the negative sentiment in Apple was the deal made by Nokia and China Mobile on the Lumia mobile phone. China Mobile will be promoting this phone when offering its services. The market is expecting Apple to do the same though analysts are expecting this to happen in H213.

In another announcement that may have fueled the stock slide, research firm IDC said in a report yesterday that Apple’s share of the tablet market will slip to 53.8% this year from 56.3% in 2011, while Google’s portion will advance to 42.7% from 39.8%. Apple’s tablet share will slip to less than 50% by 2016, as total global tablet sales more than double to 282.7 million units in four years as consumers increasingly shun personal computers, according to IDC.

Another comment made by Piper Jaffray which set a negative tone in Apple was as follows: "A DigiTimes article from today suggests that iPhone 5 is selling well based on comments from wireless chipset providers and seems to suggest upside to the Street's 43-45 million estimate for December. In the same article, DigiTimes is suggesting a 20% q/q decline in Apple's demand for parts and components in March. We believe this 20% decline is to be expected coming off of a launch quarter and do not believe it is an indication of how units might trend in March."

However Piper Jaffray does continue saying that 'From a valuation standpoint, you know where we stand, and the stock is still the top pick among billionaire hedge fund managers.' Apple is trading at a 39% discount to the Nasdaq Composite Index on a price-to-earnings basis, slipping from a discount of about 5% on Sept. 21, when the stock touched a record high of $705.07.

Personally I think the market is getting it very wrong on Apple. It's funny that when traders hold put options alot of bad news starts coming out on predictions of H213! Investors panic on one sentence without even getting into the detail. This makes me more of a contrarian and definitely a buyer of Apple stock. I don't care how much the share price goes down in the short term. I'm an investor not a trader!

Just because Nokia signed up with China Mobile doesn't mean it closed the doors for Apple. China Mobile has alot of other brands it carries! It is not like Nokia now has a monopoly of some sort. Regarding the tablet market, the expected loss in market share is negligible and Apple will remain the dominant player in the tablet market. Regarding the article in DigiTimes, how can you determine from today what demand will be post Q113 when we aren't even certain what demand is in this quarter?! These are just excuses to put the price down and make money on the puts. And a last note which might be disappointing investors is that Apple hasn't yet announced a special dividend – this too isn't something which has to do with the operation of the business plus who wants a dividend when you earned a capital gain of 31% this year factoring in yesterday's selloff!!!!!

Apple and Samsung go to court again today. Samsung is seeking a 'less harsh' penalty and Apple is seeking to add more products to Samsung's ban list in the US. The weakness we are seeing makes me a contrarian by adding positions in the stock. Apple is trading on a PER of 12.2x with a gross yield of 1.97%. The fact that everyone talks about this stocks makes it more vulnerable to swings. But for an investor, what happens in the short term is irrelevant. What you want to know is that the fundamentals of the company are the same as they were before the sell-off and are expected to get better as the demand for Apple products continue to strengthen.

Good day and happy trading!

Kristian Camenzuli