Everybody was probably expecting a slow market news day on Monday, Jan. 17. After all, it is the Martin Luther King, Jr. holiday, and the U.S. market is closed. But Apple Inc. (AAPL) managed to make it quite eventful by dropping a bombshell that CEO Steve Jobs has taken an indefinite medical leave battling a rare form of cancer, and the liver transplant he had almost two years ago.
Although the announcement said Jobs will continue as the CEO involved in “major strategic decisions for the company,” while COO Tim Cook will be responsible for the day-to-day operations, investors are clearly worried.
Apple & Jobs - One And the Same
Apple shares slid as much as 8% in Europe, and Nasdaq 100 futures, of which Apple comprises 21%, also fell 1.3% in the morning electronic trading. And you can’t really blame investors for over-reacting since Jobs is an integral part of Apple’s stock price. (See Chart)
Every time when you have a top executive taking an extended leave for whatever reason, the company’s stock typically will take a beating. However, very few corporations have its image and creativity so deeply linked to its CEO such as Apple and Jobs.
Jobs’ Leave Creates A Day Trader’s Dream
Furthermore, Apple’s stock has shot up over 300% since 2009, as the company has been able to continue coming up with cool products setting the industry and consumer trend. The flip side is that it also means heightened vulnerability, and Jobs medical leave is that very catalyst for some hard-hit pullback.
So, from a technical perspective, expect the stock to get clobbered by at least 8% testing the $320 level in the first trading day after the announcement (See Chart). And with the anxiety and anticipation of earnings release after the bell, the extreme volatility would make the session a day trader’s dream comes true.
$300 = Good Entry Point
In the next few days, depending on Apple's earnings numbers, it will most likely be a matter of time before the stock testing the $300 levels, with support at the $280 area, and major support at $240. The selloff at Apple will likely spread to other tech stocks as well since Apple is such a signature in the tech space.
For long term investors, $300 would be a good entry point (and you will not be alone as many are dying to get in on Apple at $300), but I’d also get a stop loss at $295. If it goes below $295, the I’d buy at $280 with a stop at $275, and so on.
Jobs May Not Come Back
Looking ahead, there’s a good probability that Jobs may not come back, judging from the “indefinite” nature of his leave, and the apparent secrecy surrounding it. However, since Jobs' health issue is nothing new, internal plans and infrastructure most likely are already in place in preparation for Jobs departure.
I also believe Apple's management team has a lot more depth than investors are giving them credit for, since Jobs is such a dominant influencing figure at Apple. But Tim Cook and his team have proven their leadership during Jobs’ five-month leave in 2009. As such, the company should go on without a hitch after Jobs' official departure.
A More Flexible Apple?
More importantly, I personally think without Steve Jobs, Apple could potentially become less rigid, and more nimble, collaborative, which could mean a more diversified growth potential.
One thing I would be worried about is that Apple could easily become a “broken” stock as new technologies and gadgets from competitors replace iPad, iPhone, and iPod, etc....if the company cannot continue to churn out new cool stuff as it used to.
The perception of a broken Apple without Jobs has already given rival Samsung stock a pop in the Asia market. Nevertheless, the pressure of new product development is something every player in the tech jungle faces, and frankly, Apple is in a far superior position than almost all of its rivals.
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Disclosure: No Positions
Dian L. Chu, Jan. 17, 2011