Apple (NASDAQ:AAPL) is flummoxing investors with swirls of positive and negative attributes. Among the strong positives are: attractive valuation, excellent growth, superlative products, and loyal customers. Among the negatives are: substantially increased imitation and competition, margin compression, seemingly more product updates than creative destruction innovation, technical difficulties getting into the largest China mobile carrier, the mapping snafu, reduced guidance, management shuffles, and general investment disappointment. Disappointment is a huge factor in stock markets.
We own Apple and are on pins and needles. Christmas sales will be known soon, and they may be determinative of near-term Apple price movement. A bad Christmas would probably cost shareholders a pretty penny.
The charts are very concerning to us now. The charts look bad, and chart patterns can become self-fulfilling prophecies.
It's not just that the recent period is showing a failed rally and a price in a plunging pattern just above visible support (Figure 1), but also the similarity of the long-term Apple chart to pre-crash charts for other companies that were also once darlings and now not (Figure 2 - 6).
Figures 1a and 1b:
Apple has a compelling valuation, better than the S&P 500 by far, but by comparison in 2012, the chart is bad.
Figure 1a - Apple:
Figure 1b - SPY:
Here is a long-term weekly chart of Apple (horizontal and vertical scale intentionally removed) showing the parabolic rise in the stocks price (and the recent vertical drop). A parabolic rise is impossible to maintain, because it goes to infinity at some point. And a vertical drop from a parabolic peak is the way a burst bubble begins to collapse.
Microsoft and Apple have been arch competitors on the computer side. How do they compare?
Microsoft (NASDAQ:MSFT) went through a bubble in a prior time. We extracted the Microsoft chart without scales as we did for Apple and created this chart overlay with the peak price of Microsoft aligned with the peak so far for Apple.
There is no proof here, but there may be a tell. The rising side of the Apple chart is eerily similar to the rising side of the Microsoft chart. Microsoft entered a parabolic price rise and crashed from there.
A few years ago, Research In Motion (RIMM) was the big dog in phones, but Apple innovated them into a business crisis. Now that about 70% of Apple's revenue comes from phones and tablets, perhaps comparison with once dominant phone players is better than with a computer maker.
In this chart, we overlayed the Research In Motion long-term chart on the Microsoft and Apple charts, once again aligning the peak prices. Research In Motion had a parabolic rise and crashed from there.
The charts look just about the same on the rising side for all three, and the early phase of the steep crash for both Microsoft and Research In Motion are tightly fitted on this composite chart.
Let us not ignore Nokia (NYSE:NOK), also a once dominant phone player. When we overlay their chart and align their historical peak with historical peak prices of Microsoft, Research In Motion and Apple, the composite chart looks about the same. The shape of a parabolic rise transitioning to a crash stands out.
Let's throw in the kitchen sink. This chart overlays the long-term charts for three other once darling technology companies, and just for fun, once darling China. The technology companies are CISCO (NASDAQ:CSCO), Intel (NASDAQ:INTC) and Yahoo (NASDAQ:YHOO). The chart for China is the Xinhua 25 (NYSEARCA:FXI).
Adding these four additional stocks that had their parabolic rises, followed by crushing crashes, doesn't change the picture much.
These charts don't prove that Apple will crash, but they should make the prospect of that happening seem less unlikely.
Pattern repetition is part of nature, including human nature (of which stock price patterns is a part), and pattern recognition is part of survival (including recognizing a bear coming toward you when you are hiking, and a bear coming at you when you are investing).
Apple's chart is within the aggregate chart pattern of the pre-crash parabolic price curves of multiple former darlings, and that makes us very uncomfortable.
Color us nervous and tentative about our Apple position, and awaiting a good Christmas sales report.
So why aren't we out. Great question - troubling question. Broken support or poor Christmas and we are splittsville.
Disclosure: QVM has positions in AAPL in some managed accounts as of the creation date of this article (December 11, 2012). We certify that except as cited herein, this is our work product. We received no compensation or other inducement from any party to produce this article, but are compensated retroactively by Seeking Alpha based on readership of this specific article.
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