Here's why this trader is shorting Apple stock and buying gold

·5-min read

The Nasdaq Composite (^IXIC) managed to claw back most of its losses Tuesday after falling 2.2% shortly after the open. But that doesn't mean the index itself or the tech sector stocks that populate it are out of the woods. To the contrary, one trader is seeing short opportunities in not only the Nasdaq, but it's biggest component, Apple (AAPL).

Tech stocks have been lagging the Dow and S&P 500 this year, but JC Parets, founder of allstarcharts.com, explains to Yahoo Finance Live that this phenomenon stretches back to the end of the second quarter of 2020. 

"The underperformance started [on] Labor Day last year at the end of the summer, and that's when they all peaked ... Amazon has done nothing since then. It's not just tech [stocks], it's really big growth [stocks] and even small cap growth [stocks]. Growth in general peaked at the end of last summer — Apple, Amazon (AMZN), all of them on a relative basis."

The two biggest outperforming S&P 500 sectors this year are energy and financials. The Energy Select Sector SPDR Fund (XLE) is up 38% and the Financial Select Sector SPDR Fund (XLF) is up 26% year-to-date. Parets says, "[T]he big winners have been coming out of value [stocks] ... Financials, Berkshire [Hathaway], energy ... Those have been the winners. The losers have been the growth stocks."

2021 is not 2020

Parets also notes the different market environment this year compared to last year — a phenomenon many investors may not be noticing. "There's so much more evidence that 2021 is just not what 2020 was, right? It is a completely different type of market, and some investors are able to adjust and see the information coming in and act accordingly. And some investors just like to sit on their hands and hope that last year's market was going to continue to be this year's market. I see it every day, and they're paying a price for it," he says.

Parets outlines his trading style using the recent highs of certain trading instruments as a line in the sand. If the price is below the level, he's thinking bearishly. "[If the index level is] below the February highs in small caps or the Nasdaq, under no circumstances can we be long ... Bottom line is there's no reason to be long if the Nasdaq or small caps are below those February highs."

Apple stock, like many of its peers, has gone largely sideways since September despite making a nominal record high in January. Parets likes a short in Apple based on its relative underperformance, and issues a warning to fund managers who may be loading up on growth stocks at the expense of risk management.

JC Parets breaks down an Apple short
JC Parets breaks down an Apple short

"I'm hearing that [Ark Investment Management CEO] Cathie Wood considers Apple her cash equivalent. That's pretty scary if you ask me. So, I really like the short a lot. Notice those September highs — where we got to in September was 138. We tried to get back there in January and failed. Most recently, we tried to get back there last month and failed, again. That's the level, 138. If you're below 138, under no circumstances can you own Apple ... I prefer to be short. And how low could it go? ... I could go real low. Why can't it get back toward 100?" says Parets.

Gold making a comeback

Parets also highlights how defensive sectors and instruments have been perking up since the March lows. He uses a generalized trading maxim to illustrate how the trends in defensive stocks morphed from bearish to bullish. 

"First thing assets need to do before they [start going up] is to stop going down. And over the last year, what were the worst assets? Bonds, yen, gold, staples on a relative bases. All the defensive areas were the worst place to be. And that changed in the first quarter of this year. They stopped going down, and over the last couple months, they've actually been going up," says Parets.

When it comes to things that have started to go up, Parets is looking at playing gold. "We've been bullish gold. That trade's been working — not just the metal, also the [gold] miners as well. Yen stopped going down, bonds stopped going down. They're not really going up, but they're not going down either. And [with consumer] staples, utilities, [and] REITs outperforming, does that remind you of an environment where stocks are doing well? Or should they be doing poorly?" he asks.

Separately, Lee Munson, president and CIO at Portfolio Wealth Advisors, is also telling Yahoo Finance Live he likes gold as an investment because the environment for the precious metal has fundamentally changed. "What moved gold in the past is not what is moving it right now. We have had a regime change. Generally, I see gold as something that tends to go up when the Fed's balance sheet expands. Some people think the balance sheet can't expand anymore. That's what I call 'BS'," he says.

Be sure to join Jared Blikre and Katie Stockton, Founder and Managing Partner of Fairlead Strategies, in a Yahoo Finance Plus webinar Wednesday, May 12 from 2:00pm ET to 2:45pm ET. Anyone may register for free here.

Investors are looking to navigate the deteriorating relations between the world’s two largest superpowers — the U.S. and China. Katie Stockton, founder and managing partner of Fairlead Strategies, joins Yahoo Finance’s Jared Blikre to break down the price action and trends behind some of the new opportunities in stocks, bonds and cryptocurrencies, as global economies recover from the COVID-19 pandemic and the U.S. celebrates Asian American and Pacific Islander Heritage Month. Katie explains her top down approach as Jared demonstrates how to leverage the power of Yahoo Finance Plus for technicals, fundamentals and portfolio management.
Investors are looking to navigate the deteriorating relations between the world’s two largest superpowers — the U.S. and China. Katie Stockton, founder and managing partner of Fairlead Strategies, joins Yahoo Finance’s Jared Blikre to break down the price action and trends behind some of the new opportunities in stocks, bonds and cryptocurrencies, as global economies recover from the COVID-19 pandemic and the U.S. celebrates Asian American and Pacific Islander Heritage Month. Katie explains her top down approach as Jared demonstrates how to leverage the power of Yahoo Finance Plus for technicals, fundamentals and portfolio management.

Jared Blikre is an anchor and reporter focused on the markets on Yahoo Finance Live. Follow him @SPYJared