For Apple, a Welcome Crescendo of Bad News

 | Mar 14, 2013 | 2:30 PM EDT
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Never try to catch a falling knife.

Buy on the dip.

Buy low, sell high.

This is all good advice, but exactly how do you reconcile those admonitions? How do you tell when the knife has stopped falling and turned in to a buy-on-the-dip opportunity? I think you wait for a crescendo of bad news -- which does mean you have to follow a stock very intensively, as you'll hear the increase in negative noise.

Right now I'm hearing the beginning of that crescendo with Apple (AAPL) as analysts throw in the towel on their target prices. On March 12, for example, Jefferies cut its target on the shares to $420 from $500. Of course, if an analyst does this after the stock has already plunged to $430 or so from an all-time high of $705, he or she will be tempted to come out with extreme pessimism in order to justify your late call. So, fittingly, a Jefferies analyst went on CNBC to say that he expects Apple to miss its guidance for the March and the June quarters.

Now, the idea that Apple will miss in the March quarter is pretty much the consensus view at the moment. But he expects a June miss, as well? This is the kind of swing to extremes that I seek when I try to decide to risk a finger or two on what has been a falling knife. (None of this, of course, is a guarantee that Jefferies is wrong.)

I'm also looking for end-of-the-world stories, and I'm starting to see them right now about Apple. Many of these are connected to Samsung's coming introduction of its new Galaxy S4 smartphone, scheduled for Thursday evening. Now, I think this is an important product, and history says a new Galaxy will take market share from Apple's iPhone. But what interests me is the way headlines have gone from such things as, "Samsung launches big new iPhone competitor" to those more along the lines of, "Is the Galaxy S4 the end of Apple's iPhone?"

Finally, I'd like to see counterintuitive climbs on bad news. Moves like these are an indication that an increasing number of investors think a stock has fallen enough to be cheap. When negative news is a catalyst for an advance in share price, it's an indication that the some contrarian buyers have started to emerge. Those contrarians are important early buyers for a punished stock. They may be buying too early, but you won't see a turn in a stock's trajectory until this group makes an appearance.

In the case of Apple, the shares were up 1.2% intraday Thursday, around noon, ahead of Samsung's planned product announcement at 7 p.m. None of the early speculation about the S4 suggests the product will be a dud; in fact, rumors say the S4 will come with a five-inch screen vs. the four-inch screen on the iPhone 5. Given that, I think what we've seen today has been true contrarian buying. Of course, we'll need to see if it holds up through Friday, when the S4 has actually been announced.

That aside, all of this is promising for those of us who think Apple has fallen too far -- but who don't want to get caught buying now, in case there's further downside to come.

I'd suggest waiting until after the company's next quarterly earnings report, scheduled for April 23. There is a good chance Apple will miss on earnings -- the Wall Street consensus is for $10.21 per share -- or on margins, or both. A share drop on that news might wash out the last weak hands holding Apple. I'd be a buyer on that move.

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