Apple Inc. – China Mobile (or Legal insider trading made easy!)

This deal happened seven weeks ago.

In the past week Apple and China Mobile struck a deal publicly announcing to make the iPhone available to the telecom’s 740 million subscribers.  This announced partnership has been a long time coming, with rumors of a possible China Mobile iPhone offering dating back years.

With China Mobile’s unique TD-LTE network rollout coming in mid-December equity analysts are well on their way of ratcheting up Apple’s earnings estimates expectations for the coming quarters.

How did Apple’s shares preform last week, the week of this publicly announced blockbuster of a deal?  Apple shares were lower on week.

Huh?

How could this make any sense?  This is what people hate about the stock market.  This seemingly illogical price movement in relation to a bullish publicly announced material business transaction.  Of course there is the well-worn Wall Street cliché ‘Buy on rumor, sell on news’ crap.  But as far as I can see this deal, as I said earlier, was rumored for years and just fell out of the blue.

Or did it?

Back on October 27th I wrote a blog, “Apple Inc. – Breaking Out of EBV+5!” highlighting Apple’s positive transit of EBV+5.  Here is the model price chart at that time.

Apple Inc. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Apple Inc. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

I professed in another blog; a previous blog (August 19th) that I thought it was unlikely that Apple would ever have a positive transit of EBV+5 in the future.  I was wrong and Apple did have a positive transit of EBV+5.

So I wrote this in my October 27th blog post:

For those who have reading this blog for a while know that EBV+5 is a significant EBV level and that any positive transit would have importance.  My first response was to check whether earnings were about to be released.  I quickly found out that Apple’s earnings would be released on Monday (October 28th), probably after the close.  Wow, could this be a coincidence.  Will the Apple earnings blow away what the street is expecting?  Will there be corporate action, such as a special dividend, that will make shareholders and the market happy?  My guess is as good as yours.

But I don’t have to over think this move.  I can be just a part of it.  Yes, I took a position in Apple.  That was the easiest thing to do.  Go with the flow.  I have seen this occur so often over the last 10 or so years it is of little surprise.  See people always know corporate events before they are publicly disseminated and they act according for their own interests.  Isn’t this insider trading, you ask?  Maybe!  I know I’m not trading on any inside information.  Model price is telling you something is up and I’m just going with the flow.

And I conclude

Who knows what will happen?  But as I have said before, the likely hood of Apple having a positive transit of EBV+5 was a low probability event.  That low probability event occurred just before Apple’s year-end financial results are about to be released.  Call me crazy but Model Price is telling everyone who will listen there will be good news coming! 

After the market close on October 28th Apple’s year-end earnings were released.

Apple’s Earnings were released with little fanfare.  Yes, they were good and met analysis expectations but there were no blockbuster announcements.  However look at the trading in Apple’s shares subsequent to their earnings release.  Apple’s shares still traded above EBV+5 (see chart below) albeit with little volatility.

Model Price chart of Apple

Apple Inc., with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Apple Inc., with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

The week before last  – the week of November 25th – Apple’s shares spiked with no apparent news. (See arrow on chart above.) Obviously news of the China Mobile deal started to leak in the public domain.  Finally culminating in the publicly announced deal last week.  Insiders and others probably used this opportunity to dump Apple’s shares for a quick profit after holding over sized positions awaiting the publicly announced news giving short-term downward selling pressure on the shares.

What can I say?  Fortunately (or unfortunately depending on your point of view) I see this all the time.  This is what gives the stock market a bad name or leaves a bad taste in peoples’ months.  Insiders profiting on non-public news while outsiders are stuck holding the bag when things go wrong.  Model Price Theory (MPT) can go a long way to level the playing field and help investors profit from potential non-public news.

Remember our EBV lines are fundamentals and transits of any kind are very important signals.  Obviously people knew about this coming China Mobile deal and acted in their own economic interests sending an important signal to model price users that something big was in the works.  I took a trading position in Apple, as I said in my blog on October 27th because of this positive transit and yes, I profited from the China Mobile news, happily.

Just another profitable day in the life of a model price user.

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