Warren Buffett is famous for saying, "Be fearful when others are greedy and greedy when others are fearful." On an individual stock basis, Apple (NASDAQ:AAPL) trading below $500 for the first time in a year suggests it's a good time to get greedy. While the stock briefly dipped below the magic level during yesterday's session, the price action thus far today makes it look like a close below $500 is becoming an inevitability. The question you must now ask is whether the stock is a buy on its first day below $500, or if it has room to fall. As bullish as I have been on the stock at these levels for some time, a wait-and-see approach seems more sensible for now.
Not market timers
Here at the Fool, we are not market timers or technical traders, but neither are we oblivious to the reality of how stocks trade. The $500 per share level has been an important support for Apple shares for some time. A close below this level will likely have a psychological impact on both individual and institutional traders alike. For example, as of midway through the trading session, the stock has nearly reached its average daily trading volume of rough 22.2 million shares. It is not hard to imagine that many institutional program traders had stops set below $500 that have now been triggered. The stock may be in a precarious position at current levels and subject to heightened volatility.
While it is often at the bloody edge that big wins are secured, the sheer speed with which this stock can move from here favors caution. Again, while I don't advocate being short-term, there is a certain basic level of caution that is simply prudent. While I'm not sure either specifically apply here, the adages "don't try to catch a falling knife" and "don't stand in front of a runaway train" come to mind if Apple stock really begins to slide from here.
Yesterday, The Wall Street Journal reported that Apple had significantly cut orders to suppliers of various iPhone components. The news led to a major sell-off if some of those names. Cirrus Logic, which relies on Apple for the bulk of its business, was down nearly 10% on the news, while others also fell. The report was simply the latest in a long line of blows that have hammered Apple lately, despite the fact that the details were not really new information.
The sales data coming out of various wireless carriers, however, suggest that iPhone 5 sales have been solid. As most carriers saw big pickups in smartphones sales for the fourth quarter, the segment represented by iPhones has been improving. Given the blend of this type of sales data and the "non-story" represented by the cut in orders to suppliers, Apple seems to be far better off than people think.
With Apple set to announce earnings on the horizon, the timing may be good to look for an entry point into the stock. While I am a bit hesitant to not wait for the dust to settle from this current leg down, there is a good chance that the market is waiting for any positive news to take Apple shares higher. Given the company's history of under-promising and then beating estimates significantly, even though this will not come as a surprise, it may be sufficient to drive shares up.
Overall, while I think it is a bit early to jump into the stock, I would likely look to be in before earnings are released. Apple is not going anywhere. Within the next day or two, Apple should be on your radar.
Fool contributor Doug Ehrman has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Cirrus Logic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.