Shares of Apple (AAPL) are trying to stage a comeback after a rough stretch took the stock into bear market territory last month. The downturn came as no surprise to Breakout regular Paul Schatz, president of Heritage Capital, who has been calling for an Apple sell-off since last April when he predicted a 30 — 50% drop was near.
Apple shares fell as low as $505 on an intraday basis in mid-November, off as much as 25% from the all-time high of $705 hit when the iPhone 5 launched on September 21st. The stock has since recovered from bear status, but sentiment remains damaged.
"If you're a trader, I think Apple has some upside left in it," says Schatz in the attached video. "But what we saw in that twenty-plus [percent] decline was just the first leg down of a multi-year decline, which I think ends up knocking 50 to 70-percent off the stock."
Schatz sees any pop as an opportunity to sell your position. And if you own a lot of AAPL, in his opinion, it's time to lighten up your holdings or use some options protection.
"If your thesis, like mine, is that long-term Apple is going to be sub-$500 or sub-$400 [a share], then you can't get too greedy on the upside, because the upside is going to be fleeting," Schatz says.
With a company like Apple it's difficult to pull off a short position, but he's not ruling it out.
"Not yet, but I think it's close," he says about shorting Apple. "Whatever resolution we get with the fiscal cliff, whether it's good or bad, it's going to lead to problems with the economy, and Apple's gonna take it on the chin."
Not even a special dividend or a stock split would turn Schatz into an Apple bull. He thinks either event would lead to an investor frenzy sending shares soaring. This would be a "bell-ringing" opportunity to dump out on strength.
Bottom line: Schatz isn't buying the continued Apple growth story. He thinks irrational exuberance fueled the 220% rise over the last five years. He's looking for an exit strategy, not an entry point.
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- Paul Schatz