Gundlach on Apple: Short-Term Bottom Is In

Why Did Apple Shares Plunge?
Kimihiro Hoshino | AFP | Getty Images

Apple shares enjoyed a terrific Monday, obliterating all of their losses from the prior week. And that could not have taken famed investor Jeff Gundlach, of DoubleLine Capital, by surprise.

After all, on Friday's "Options Action," Gundlach made the case that Apple's short-term bottom is in.

Gundlach has been bearish on Apple for some time now. As he noted, "I recommended against it in April, because of the basic viewpoint that it is somehow super-human, could do no wrong, and is going to take over the world." In other words, sentiment was so unbelievably overheated that Apple was due for a correction sooner or later.

But there were non-psychological reasons to get bearish as well. As Gundlach pointed out, this "super-human" belief came at the same time "some of their products, now that they're in their fifth generation, were showing only very incremental improvements." Worse, "the major product innovator isn't there anymore." Gundlach is of course talking about the late CEO of Apple, Steve Jobs.

Given these headwinds, "secular decline relative to the over-belief" remains "almost inevitable."

All of this being said, Gundlach now believes that it is time for short-term traders who have been short Apple to cover their shorts. Apple has just experienced a horrific two-month decline, and Gundlach attributes a lot of this to tax selling, rather than a reaction to fundamental catalysts.

Further, Gundlach noted that Apple's action on Friday was a textbook example of what a short-term bottom looks like. Look at Friday's chart, and you'll see a "knife-thrust down, and the reversal to a modest upward close." To Gundlach, this indicates that the stock is headed higher in the near-term.

So how much higher could it go? Gundlach sees the stock going about $50 higher from where it closed on Friday.

And what should you do with Apple stock when it's trading up at $575?

To Gundlach, the answer is clear. "I would view that as a selling opportunity."

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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