Buying APPL into Tomorrow's Announcement

This morning I began to press my short position, as the indicators triggered the anticipated leg down. This was a fairly easy call, given the setup was pretty straightforward, with 6 consecutive up days and plenty of divergences and obvious resistance levels. It gave me the confidence to add more to my short bet.

AAPL - I am also adding to my AAPL position, but I am well hedged with short exposure so this is not a straight bet. Here is the logic: the well documented hardware issue with I-phone 4, cost the stock at least more than 10 points or roughly $9B in market cap - totally disproportionate punishment. The stock was not overbought as the rest of the market and is only 2.5%-3% from a decent support (~242). Additionally, we should find out tomorrow what type of fix they will offer for Iphone 4. Whatever it is, the uncertainty and the overhang will be removed, and even the worst case scenario, a recall, would most likely be a temporary set back. It should also be understood that the initial move on the news could be pretty violent. The speculation is pretty rampant and the expectations range from AAPL doing nothing about it to a complete recall. I would tend to agree with those expecting that AAPL will offer free bumpers (it would be a totally negligible cost ~ a few pennies in EPS per million phones) plus a silent recall.

My gut tells me that this is completely overblown by the media rather than users complaining about it. I conducted a small informal poll of my own, asking my family members and friends who own it and NONE of them had any problems with the antenna. I think the recall would be too drastic and frankly unnecessary, for an issue that is not as bad as some others that we have witnessed with consumer electronics products. Bottom line, I see this as a temporary issue which will be resolved by Apple.

Apple earnings are expected to be solid when they report on Tuesday, likely to be at least in line or slightly better than consensus. There is some talk that margins may have a bit see some pressure because of new product introductions. The I-Phone shipments will be strong as well, and I doubt that this antenna issue is likely to dissuade potential buyers. I am not entirely sure what reaction will be to their earnings, but I am not sweating it. Buy the dip, but if you are negative on the market's near term direction, hedge it with either QID, SDS or TZA. This morning I added a small stake, but will be adding more if tomorrow's announcement creates volatility in a stock.