I don’t know that I’ve seen a bull market more hated than this one.
The investment world is all a flutter with bearish talk and fears of the future. Who knows maybe they’ll be right this time but if 22 years on Wall Street has taught me anything, its taught me to be wary of consensus thinking.
Is this what’s in store for the Stock Market? The public certainly thinks so.
The Stock market smack attack of last week has the whole world asking if this is the beginning of the end. It bears repeating, if everyone is asking if this is the end then the chances are really high that it isn’t.
And if it isn’t the end then we must start looking at how to profit from this pullback. One stock that has gotten particularly hard hit is Apple Computer. After hitting a high of $705 it is now languishing at $542, more than 20% from its peak.
Who’s to say that it can’t drop another hundred points before bottoming out? This is the stock market after all and if the last 10 years have taught us anything it’s that moves to the downside can far eclipse investor expectations.
So what’s a cautious investor supposed to do?
If buying Apple (AAPL) directly entails too much single stock risk, what you can do instead is buy an exchange traded fund (ETF) that carries a heavy weighting of Apple Computer stock. Now normally I would advise against buying an ETF that is heavily stacked with one stock because you’d be neutralizing one of the top reasons for owning ETFs, namely diversification.
Apple Stock on a bad day?
But in this case, owning an Apple heavy ETF is appropriate strategy if you’re looking to buy Apple on the cheap but don’t have the appetite for the type of volatility that can sometimes wrack through Apples price.
Dow Jones U.S. Technology Index Fund (IYW)
IYW is an ETF that has a whopping 23.37% weighting of Apple stock. Along with Apple you’ll also get exposure to Microsoft (MSFT), IBM, Google (GOOG) and a gaggle of other big tech names. One thing to note about this ETF is that its volume is quite poor, only trading about 60,000 shares a day.
I’m not a fan of low volume ETF’s but for those seduced by IYW’s outsized Apple holdings you can buy the stock right here in the $68 range with a stop loss of $64.
Arguably a better way to play Apple through an ETF would be to own….
PowerShares QQQ Trust, Series 1 (QQQ)
These are also affectionately known as the “Q’s” or the “triple Q’s” on account of the ticker symbol being QQQ. The Q’s still offer a very respectable 19.72% Apple weighting but unlike IYW, they trade massive volume of over 30 million shares a day.
Along with Apple ownership you get the rest of the entire NASDAQ 100 stocks that include such stalwarts as Microsoft, Google, Amazon (AMZN) and Qualcomm (QCOM). The Q’s have been a stellar performer over the last few years and this pull back looks like it could be setting up a compelling buying opportunity.
Over the very short term the Q’s look like they may have just a smidge more downside left in them and I wouldn’t be a buyer until they got down from $63 into the $62 range.
At $62 & change I’d buy it with a stop loss at $56 because if the market uptrend reasserts itself I would expect the Q’s to make new highs. That would put this one up north of $71 a share or about 15% higher from $62.