Apple is a stock that has truly grown to the sky over the past 10 years, but the old saying that “the bigger they come, the harder they fall” certainly looks set to be borne out here, and the idiots who have been buying it over the past year as the giant top area has completed are going to be taught a severe lesson in the consequences of the lethal combination of greed and stupidity combined – after all, who but a total moron buys something that has risen 100-fold in the space of a few years?
On its 6-month chart we can see how, after holding above support at and above $500 for a couple of months, thanks to the buying of the last bagholders, who must be really green, the price crashed this support dramatically last week on results when it gapped down on very heavy volume. This was very bearish action which portends much lower prices to come, and is an invitation to short it on any transient strength.
We can see exactly what is going on, on the 2-year chart for Apple. This shows that it has just broken down from a large downsloping Head-and-Shoulders top. The downslope of the pattern and the stunted Right Shoulder are very bearish and a sign that this is going much lower – and why not, given how far it has risen? What is not shown on this chart and needs to be kept in mind is that this stock was trading at about $10 in 2003. That sharp drop last week was the sound of a balloon bursting – and there is a lot more air to come out of it yet.
We can expect to see the company struggle to maintain its edge in its core business and also to branch out to hold on to market share, but even so it is likely to be pipped at the post by the competition in years to come, which could result in root and branch changes at the company, but even so it is likely to remain a large and thriving business and is thus unlikely to be grubbed up and burnt anytime soon. However it is clear from the price action in this stock that the market has twigged that the company’s best days may be over, even if crunch time has not yet arrived. Apple has some pie charts on its site that demonstrate that its market share is still impressive.
Conclusion: anyone daft enough to be still holding this stock should ditch it on any minor rallies, such as the one this morning. If it should rally up towards the underside of the neckline on its Head-and-Shoulders top in the near future, we will short it/buy Puts, although it is unlikely to get above the bottom of its recent gap down, meaning it is a short approaching $462 – and it is very near that now. The fact that it has broken down as the market has rallied to new highs is yet more evidence of its growing weakness.
The prediction of a breakdown by Apple was made back in December on the site, in the update APPLE INC – BAD NEWS FOR LATECOMERS . The difference in thinking between that article and now is that Apple is no longer viewed as a bellwether for the market as a whole, as the baton will be passed to other tech companies.
Apple Inc, AAPL, trading at $458.20 at 10.49 am EST on 29th January 13.
Posted at 10.50 am EST on 29th January 13.
© 2004-2010 Clive Maund. Legal & Disclaimer
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The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities.
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