OK, everyone got their iPhone now?

Based on all the talk about Apple and AT&T and the iPhone this weekend, it seems like it's only a matter of time before everyone has one. That is, everyone who can afford the $500 or $600 price tag.

Me? No thanks. I have experienced AT&T's network. I'll wait until their exclusive expires and it's available on a faster network. Then again, do I really want to watch YouTube videos on my phone? Oh, but wait, wasn't I writing an article about investing...?

There is certainly no denying Apple's stock has been on a tear recently. I was at a dinner party at the very moment the iPhone went on sale, so naturally both Apple and the iPhone were hot topics in the room. Many who knew me well at the part assumed I'd been an AAPL investor. If only our foresight was as good as our hindsight. No, I have not been a participant in the appreciating price of Apple stock in recent years.

A young woman seated nearby had a different story to tell, however. She said she has held Apple in her portfolio for many years, and that she'd been trading profitably in AAPL for nearly as long. She told us she has a system for buying and selling Apple stock. Her system, as she put it, isn't foolproof; but if applied consistently will result in a decent return.

I hardly knew her, so I wasn't comfortable asking for return information; but I did ask her for a detail or two about her trading system. She told our little group of interested investors that her system involved buying AAPL on dips. "It's simple," she said, "Buy it when the price drops a few days in a row. A few days later you'll be ahead on your money."

Unfortunately she wouldn't give us any real details about her system. She wouldn't tell us, for instance, how many days in a row her market timing system needed before triggering a buy signal. I don't suppose I would divulge the secrets of my own successful stock trading system to mere acquaintances at a dinner party either. After all, once the secret is out the system stops working.

My mission this weekend was to do a little investigating into AAPL and what possible gains could come from an automated market timing strategy of buying on the dips in the stock price. I decided to work with an arbitrarily large pool of data, the adjusted closing prices of Apple stock since January 1st, 2000. Including Friday's close, there are 1883 trading days in the sample. My method was simple: Calculate the average return on the purchase of AAPL at the closing price the day after some arbitrary number of consecutive days where the price had decreased. You might argue that buying at the closing price is too conservative an approach, but I wanted to keep this analysis as simple as possible. Perhaps in time I'll refine this evaluation process to account for it.

I learned a few interesting things from my analysis:

• Regardless of the length of the dip, whether it's only a single-day price dip or multiple days, the average return the next day, 2 days later, and 5 days later has always been positive
• The average return 2 days after a dip is usually, but not always, higher than the return only 1 day after a price dip
• The average return 5 days after a dip in Apple's stock price was always higher than the 1 and 2 day returns
• Out of the 1883 days in the sample time period, there were only 408 days when AAPL closed down from the previous day
• There were only 174 days in which Apple closed down for 2 or more days in a row
• The longest dips (there were two of them) in Apple stock since 1-January-2000 were only 6 days long

If you were lucky (or smart) enough to buy AAPL on either of its 6-day dips, chances are you made money. That is if you sold it after 1,2 or 5 days' holding period. After these dips the best trade yielded over 9% return after 5 days. Even the two 1-day holding periods averaged just over 3%. That's a quick and tidy profit.

So does her stock market timing system work? It's hard to say without knowing her exact formula for buying and selling. It's not hard to see - at least by looking back into historic data - that her strategy could indeed pay off. Whether it's a better strategy than a simple buy-and-hold strategy or a nearly as simple dollar cost averaging strategy is an analysis I'll leave to another day.

For now, I'm calling this one "interesting" and worth a closer look sometime.