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Apple's Miss Provides Ideal Entry Point To Buy The Stock

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Shares of Apple (NASDAQ: AAPL) dropped by more than 5% in late trading after missing on both revenues and earnings in its quarterly earnings announcement after the bell on Tuesday.  The after-hours rout could be the best thing for new investors who have been waiting for Apple stock to go on sale.

What went wrong? Analysts are still picking through the numbers, noting relative strength in iPad sales compared to the iPhone, for example, and wondering whether to ascribe that to the upcoming release of iPhone 5, to so-called "macro factors" like a slowing Chinese economy and continued economic weakness in Europe, or even to the challenge of Google's Android.

Others are looking at the leadership of Tim Cook, and wondering aloud about a post-Steve Jobs Apple that now has missed earnings twice since the passing of the company's legendary founder and CEO.

Heading into Tuesday's session, shares of AAPL had pulled back for two days in a row, trading in a relatively narrow, 14-point range since the beginning of the July. The stock had not made a new, short-term low in nearly a month.  Mid-morning Wednesday, Apple shares were trading 4.8% lower at $571.61 and had plumbed as low as $570.51 earlier in the session.

It will be worth seeing whether or not those who spoke confidently about buying the stock on weakness will put their money where their mouths were. Apple is significantly oversold, and while the population of traders looking to bet against both Apple and the market in general has been growing in recent days, the fact that shares of AAPL have not traded in technically oversold territory since it bottomed in mid-May should be enough to bring at least some fresh cash into the stock.

Listening to the immediate post-announcement reaction and subsequent sell-off, you'd think that the most important "Apple Store" is the S&P 500, itself. Going into the announcement, the conventional wisdom insisted that as Apple's earnings announcement went, so would the rest of the stock market go. Even with Ben Bernanke surprising Wall Street with a late note that the Fed was looking to provide additional stimulus "either next week or in September," preoccupation with Apple temporarily trumped faith in the power of the Bernanke put.

Interestingly, while Apple disappointed, so-called Apple derivative plays surprised to the upside. Last week, Skyworks Solutions (NASDAQ: SWKS) exceeded analyst expectations in terms of both profits and sales. Broadcom (NASDAQ: BRCM), whose announcement was overshadowed by that of Apple, managed to beat estimates on earnings and revenues, trading up more than 2% in afterhours trading.

As one trader noted, the best play on Apple is Apple itself.  The sharp reaction in the stock after the close on Tuesday has made it a lot less expensive for traders and investors alike to get in the game. A $570 print puts Apple at a near-perfect 50% retracement of its rally from the mid-May lows to the high in early July. This, combined with newly and dramatically oversold conditions, is often the stuff from which significant bounces are built.