Long AMZN, Short AAPL Pair Trade Has Legs

On 12/17/15 in this post we highlighted the favorable technical set-up in the ratio of AMZN vs. AAPL and said the following about the first chart below, which is the chart we presented in the original post:

“Here’s AMZN vs. AAPL.  I really like this chart and long AMZN vs. a short in AAPL looks very compelling here as AMZN is breaking out on a relative basis from both line (1) and (2).  Line (1) is 15 years old and line (2) is a decade old!  This spells a lot of trouble for AAPL as its own chart looks bearish on an absolute basis…

This has important implications for the broader averages.  If the SPX is to stay bid, the mega caps need to continue holding up.  Thus, if AAPL is to come under pressure, the capital can’t just exit equity-land, it needs to find an equity vehicle that is just as large and liquid, not to mention in a similar industry space to keep relative weightings vs. the broader market in check.  AMZN would be the perfect home and beneficiary of rotations out of AAPL to keep the overall SPX bid if that’s what needs to happen from a policy standpoint.  Buy AMZN, short AAPL.”

With AAPL down some 700 bps today on lackluster results and guidance last night, here’s what the ratio looks like now on an updated basis with a slightly different technical look vs. our original chart:

Though it’s take some four months to begin to bear fruit vs. our original late-2015 post, the favorability of the idea really seems to be gaining momentum.

There’s nothing but white space above for the ratio at this point and I see no reason why it can’t ultimately reach ~20x, or it’s 23.6% retrace level formed off the 1999/2012 highs/lows, over the long-term, or +3x from current levels.

My long-term absolute opinion on AAPL is no different today than it was almost four years ago – a bad place for long-term attempted wealth creation.