Shaking the Tree

 | May 02, 2013 | 4:00 PM EDT  | Comments
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Imagine it's August 2013. You can do it. Think 90% humidity and 90-degree temperatures. On the sidewalk, kids are selling lemonade for $0.50 a cup (in gold nuggets or bitcoins.) The NFL has started pre-season games and, in baseball, the Chicago Cubs, New York Mets and Houston Astros are all so far out of first place that they can't even see the top of the standings.

And in the stock market everyone is asking, "Can Apple (AAPL) do it?" Rumor has it that the iPhone 6 is scheduled for release in for September. (But remember, this is Apple: The company never confirms anything). Will the new phone make Apple hot again? Will it be just ho-hum? Or repeat an embarrassment like that of Apple Maps?

Or, worst of all, will Apple miss the September window? Keep that August scenario in mind as you think about what you want to do about the recent rally in Apple's shares. Since closing at $390.53 on April 19, Apple has rallied about 17% to $447 at noon on May 2. In the process it has moved slightly above it's 50-day moving average at $434 and it looks poised to move higher. Maybe.

How high it manages to go will depend largely on the summer's "wall of worry" scenario. The next full iPhone update, the iPhone 6, has been important to Apple since the April launch of Samsung's Galaxy S4 seriously threatened the iPhone's aura as the coolest smartphone. The new iPhone, Wall Street says, has to offer enough whizz-bang to shift the momentum back to Apple.

Whispers in late April and early May that Jonathan Ive, Apple's reigning product visionary, was conducting a full makeover of Apple's mobile operating system have raised the stakes. The mobile operating system hasn't had a complete overhaul since it was introduced in 2007 and speculation is that Ive is planning a complete redo for iOS7. We'll know more about the rumored new look and feel and about any big new features after Apple's Worldwide Developers Conference in June.

The preview has the potential to raise the hopes for the iPhone 6 to new heights. I think the graphics will be superb. I think integration of social networks will break new ground. I think we'll see at least an indication of new gesture technology for navigation. After seeing the preview, I think investors will be able to believe that the iPhone 6 will leapfrog over the Galaxy S4. This is what Apple's stock needs to move from bounce to sustained rally.

But what investors really won't know after the June preview is whether the software will be ready on time for a September launch or, if in a rush to get it finished on time, Apple has left too many loose ends that will come unraveled when the phone hits consumers' hands.

That will make August and September a time of rising anxiety around Apple. And the higher the price goes after the June developers preview, the higher the late summer anxiety and the greater the likelihood that shares will sell off as some investors decide to book profits ahead of a September launch. (All this anxiety will get a big boost if Apple decides, as some analysts now speculate, to hold off on introducing a new iPhone 5S, in order to move down the pricing ladder, until September. Majority thinking is still looking for a June launch of the 5S.)

To me, all this adds up to a summer of big volatility for Apple shares. I'd expect a move up through the June developer's preview -- and maybe for a couple of weeks after that, if reviews of the preview are positive enough. Or we could see a move lower in June, if the preview disappoints, or in August, as worries increase about the September launch.

I think the best course is to try to trade this volatility with the goal of selling high enough and buying low enough to lower the basis price on your Apple position. Or, if you're building an Apple position, buy on the anxiety in August -- and hope that Apple doesn't miss its release schedule.

I don't think it will. Apple knows how much it has at stake on this release. But this is software we're talking about, and glitches can happen. Realize that in Apple right now you've got increasing potential both on the upside and on the downside as we move toward September. Buckle your seatbelts.

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