If Apple Does Correct, It Will Do So Soon 40 comments
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This Market Just Sucks the Life Out of You
What I mean is that this lateral movement of Apple (AAPL) and the markets is incredibly boring, and at the same time extremely nerve racking. Just about everything is trading within a range, all the major indexes, sectors and AAPL. With the S&P, the range is bound by support at 805 and resistance at 860. Then there's a smaller range within the range from 820 to 840. The corresponding range for AAPL is 80 to 100 and the inner range from 85 to 95. We just keep bouncing around, never making headway, never mounting any significant rally up or down.
The good news, if you can call it that, is that we're not plunging into the depths of the abyss. The bad news is that we're not making any progress either. And the longer we stay in this pattern, the greater the chances are that we consolidate and turn this sideways pattern into a continuation pattern, and that means down.
So, that's my expectation, that in the bigger picture we'll be continuing the downtrend. But, and that's a BIG BUT, in the near term it looks as though the markets need to unwind those oscillators, like the RSI and Stochastic, which are generally oversold, and move north. This means the likelihood is that prices will then move to the upper bounds of their respective patterns. So, in the case of AAPL, that means towards 95 and hopefully then towards 100 and beyond.
click to enlarge
In the last post I presented some fairly compelling charts, in multiple time frames, that indicate some near-term momentum to the upside. The chart I have included in this post is an AAPL weekly chart, that I distributed earlier today, with my email alert service. This chart shows that AAPL has retraced an almost perfect fibonacci ratio of 61.8%. That type of retracement level almost always provides very strong support, and it's what has apparently supplied the floor for the basing pattern that has formed over the past 2 months.
The indicators that make me think we'll see an upward correction before we see a continuation down, are the positive divergences that have developed alongside the lateral base in both the RSI and the MACD. Positive divergences are very powerful patterns that provide a high probability for a bullish reversal.
So, you might ask, if we have positive divergences, then why do you think we're still going down? Good question! Check out this monthly chart below, it shows momentum that is still pointing almost straight down. There's not even a hint of reversing just yet. Perhaps this coming correction will put a dent in that momentum, but for now it's simply not there.
Now, if AAPL does correct, it's going to do it soon, as the indexes and AAPL are all consolidating their lateral patterns. It could happen today (Wednesday January 28), it could happen in the next 5 days, but I believe it will happen sooner than later. So, if the correction occurs, the pattern indicates a price potential as high as 120. Now I don't think it can run that high, I think the previous high back in early December of 103.60 will provide plenty of resistance. Only time will tell.
Disclosure: no positions
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This article has 40 comments:
The stock market is up 7.5% in 6 trading days. Apple is up 20% over the same time period.
Yeah, 'incredibly boring' like you say... not!
Then again, you also said Apple would test the lower 70's when it was just below 80...
Yes, Steve's health is a major factor on what the stock will do, but it is totally illogical to think that if he were in fact not coming back to the company that he would leave this ship without a capable captain.
Also, looking at charts in this market is totally misleading - especially for AAPL. AAPL had stellar results all of last year and the stock was dragged down by rumors, shorts and fear alone - not by fundamentals. Plus looking at the last chart, you can see the stock has previously had significant downward drops then went sky rocket.
Long term AAPL is a solid company and a good company to invest in if you can be patient and handle the volatility.
Plus, with $25 per share in cash they are fiscally stable - something most companies can't claim to be. Once AAPL acquires the companies needed to produce their products in-house, I would expect a dividend to be offered. Until then, that cash will be a safety net and will also fund R&D.
Just my opinion.
Apple is the strongest Tech company today with the largest cash reserve and most wildly talented people in the industry. Stock price and short term earnings estimates and speculation about Steve jobs health are nothing more than distractions for fools. Only the best companies will come out swinging from this recession and Apple will be hitting home runs in the other guy's park.
Buy some now and reserve a good seat, you'll be glad you did.
Being an inventor myself with 10 US Patents I can tell you that inventors do just that, they keep pumping out ideas, non stop, and then (if they have the money, as apple does) they instruct employees to make it happen. I can promise you that Steve Jobs has more ideas on the books then Apple can even get to in the next 15 years, ideas that can't even begin to be wondered about because the technology needed to think about the technology needed for some of them is years away.
Apple's connection to Jobs and the market is merely emotional and has been for the last 5 years, if you notice Steve stepped away and then the quarterly report and look at the stock today. Does anyone really think that announcement wasn't timed? Does anyone think Steve is coming back in 6 months? By the time June rolls around Apple will be in the $110-$120 arena and will have brought out a nano iphone, a completely new piece of hardware, sued the "pre" into non existence, and you will see Jobs at an event smiling and saying, "look at how well Apple has been doing with out me involved".
Just my two cents
You timidly say "if A, then B, so that is my prediction." Later you say, "but C may happen, and if so, then D" in spite of the fact that B and D are mutually exclusive conclusions.
Boil it all down and you are not saying a damn thing. And it's a good thing too, because your charts are worthless at predicting the future. Absolutely worthless. You'll get it right as often as wrong, but your emotions will make your performance worse than 50%.
Give it up, man. Oh, that's right, your blog is supposed to be earning you money with that "Donate" button, that's why you are on here spouting your BS. How's that working out for you?
Thompson
That's true, up to a point. But that excuse is wearing thin. Apple has three times more cash than it needs for such purposes. And, if it were going to use its hoard to buy up other companies, it would have started long ago. This makes me suspect that the company may be planning a stock buyback.
I wasn't really giving advice (in my post that CS was responding to), but speculating on a possible news-item about a buyback, which would goose the stock. Apple has a lot of unhappy shareholders, to whom it hasn't ever deigned to toss a bone in the form of a dividend. It's overdue, from their point of view; and it would be wise for Apple to accommodate them, especially in its current situation.
I'm pleased that ZB has come to take a more reasonable attitude toward AAPL and seen the positive indications in its charts, which I pointed out in a comment in one of his articles a few weeks ago. (I said that AAPL seemed to me to be "making a bottom," rather than being set to plunge lower.) He certainly said some intemperate and foolish things in his article of Dec. 12. But I think we Apple-fans should cut him some slack, because he was correct in predicting AAPL's fall from the heights in 2008--and because his recent chart-postings and technical analysis about "non-confirmations and such are valuable.
If X happens AAPL will go up, maybe a lot or a little
If Y happens AAPL will not go up a lot or a little, perhaps it will stay around the same.
If Z happens AAPL will go down, maybe a lot, but perhaps not so much.
Hmmm.
I think I've got it nailed!
Gosh, I'm good. I'm definitely top flight anal ist material.
Where do I pick up my check?
Ayuh
Regarding charting, if used right it can indicate money flows and investor mentality. In this case, it is not showing a lot of that.
I distinctly remember Steve Jobs being dead set against an iphone or mobile device with gestures and movies and games, he has said we would never see a smaller lighter "netbook" from Apple but the Macbook Air is real close. Somebody at Apple has been pushing these ideas and had to convince him at some point.
On Jan 28 01:53 PM zoooomer wrote:
> I still can't understand why Jobs health is an issue? does anyone
> beleive he has been actually running Apple for the last few years?
> If you recall Apple always had supply and demand problems, great
> product that they just couldnt get to consumers, then, Tim Cook was
> hired and BOOM he straightened that out and the everything turned
> around, including the $28 billion in reserves. That would be the
> same Tim Cook that is running Apple today.
>
> Being an inventor myself with 10 US Patents I can tell you that inventors
> do just that, they keep pumping out ideas, non stop, and then (if
> they have the money, as apple does) they instruct employees to make
> it happen. I can promise you that Steve Jobs has more ideas on the
> books then Apple can even get to in the next 15 years, ideas that
> can't even begin to be wondered about because the technology needed
> to think about the technology needed for some of them is years away.
>
>
> Apple's connection to Jobs and the market is merely emotional and
> has been for the last 5 years, if you notice Steve stepped away and
> then the quarterly report and look at the stock today. Does anyone
> really think that announcement wasn't timed? Does anyone think Steve
> is coming back in 6 months? By the time June rolls around Apple
> will be in the $110-$120 arena and will have brought out a nano iphone,
> a completely new piece of hardware, sued the "pre" into non existence,
> and you will see Jobs at an event smiling and saying, "look at how
> well Apple has been doing with out me involved".
>
> Just my two cents
Boy have I gotten flack the whole way down, now that I make a call for a correction, and do so accurately and timely, people are still not happy. Perhaps I should just write every post saying AAPL is a 200 dollar stock, and everything we're witnessing these days is but a mirage. Would that make you feel better?
No Zach, it wouldn't make us feel better.
But if you made consistent predictions w/o the weasel clauses you include in every column---making AAPL may go up, down, or stay the same statements that CAN'T miss since they cover all the bases--maybe somebody would pay serious attention to you. Until then you're nothing more than Jim Cramer w/o the TV audience or monkey dance!
Ayuh
Second, if, as you suggest, Apple has not rewarded shareholders with dividends, then how about that being the approach for using the cash rather than a share buy back?
In this market, a lot of investors are looking for valuable *income* stocks - just day traders are looking for short-term bumps in share prices.
I don't think Apple should be setting company strategy on rewarding day traders. A dividend would reward their true investors, and might even encourage more to buy in - which would actually have the one-two punch of making investors not only happy to get some cash from the dividend, but also see the value of their positions increase.
I'm tired of the shorts and day traders - they're ruining our economy.
On Jan 28 02:28 PM Roger Knights wrote:
> Cheat Sheet wrote, responding to my comment: "Excess cash in Apple's
> arsenal is best used investing in more talent and keeping talent
> within its pool. The bad economic times we're in right now means
> having this cash on hand is less likely for Apple to bleed talent
> via lay offs."
>
> That's true, up to a point. But that excuse is wearing thin. Apple
> has three times more cash than it needs for such purposes. And, if
> it were going to use its hoard to buy up other companies, it would
> have started long ago. This makes me suspect that the company may
> be planning a stock buyback.
>
> I wasn't really giving advice (in my post that CS was responding
> to), but speculating on a possible news-item about a buyback, which
> would goose the stock. Apple has a lot of unhappy shareholders, to
> whom it hasn't ever deigned to toss a bone in the form of a dividend.
> It's overdue, from their point of view; and it would be wise for
> Apple to accommodate them, especially in its current situation.<br/>
>
If Wall Street and investors say that Steve Jobs is important, then whether Steve Jobs makes all the decisions or not really doesn't matter. If the company loses 20% of it's value if Steve Jobs doesn't come back, it's based on the perception that his magic touch is worth more than all the executives put together. Whatever WS says about Steve Jobs loss being critical is taken as the truth, and Apple stock becomes dog meat. At least for a while anyway. Apple share price will not go up any faster than any of the other Four Horsemen of Tech. The company just gets too much bad press that offsets its financial value.
You take a lot of pride bellowing you've been right since Sept., well so? the whole market has tanked, and you think that calling that any particular stock will go down really says anything?
In New England we like to say weathermen are 100% right 50% of the time. Hopefully my forecasts are a bit better than that!
I don't see how an announcement of an ordinary dividend (which would be fine with me) would reward investors more than traders--the stock would get goosed equally. With a stock buyback, investors would get rewarded because there would be fewer shares outstanding, boosting the future earnings on each of their shares. The effect would not be just a “short-term bump in share price” but a long-term boost, assuming the P/E ratio remained unchanged, since the market capitalization of the company would be divided among fewer shares.
*********************
I'm pleased to have the various contradictory possibilities the charts hint at laid out, even if the author isn't sure what it all means.
> I still can't understand why Jobs health is an issue? does anyone
> beleive he has been actually running Apple for the last few years?
> If you recall Apple always had supply and demand problems, great
> product that they just couldnt get to consumers, then, Tim Cook was
> hired and BOOM he straightened that out and the everything turned
> around, including the $28 billion in reserves. That would be the
> same Tim Cook that is running Apple today.
I also think Cook is instrumental to Apple's success as much as Steve Jobs. Jobs was also CEO of Pixar until they were bought by Disney, how can he be CEO of two very successful companies at the same time without help?
On Jan 28 01:30 PM Derrick Lilly wrote:
>
> Plus, with $25 per share in cash ...
$31.50/share as of 12/31/08, and adding about $3/quarter. As of today, figure about $32.50/share in cash (30% more than your figure.) Yes, it's accumulating FAST, despite Wall St's lack of attention to this detail.
Have a clear opinion, point of few and facts to back it up adds value to the discussion. The only times I've made major returns in when the call was clear. Everything else is wasting time. Keep looking.
Apple's cash hoard means its stock can NEVER become worthless, unlike other companies. Currently, the cash hoard means Apple's stock can never go below $30 a share.
Apple's cash hoard also allows it to fund projects or buy companies (like nVidia, ahem) to make it much more competitive despite a recession or depression.
When other tech companies, such as Microsoft, are facing losses, Apple is making tons of money.
I like it.
Looking ahead, I don't see Apple's sales improving much, as people who are losing their jobs and homes (or fear the loss of their jobs and homes) don;t spend their last dollars/euros/whatever on a new Mac or iPhone.
I DO see the company remaining financially strong, with the PE not suffering much more compression, but the stock price WILL follow the near-term earnings lower.
Near-term, the emotional rally in the markets, with the few remaining bulls scrambling to drive stocks higher as they catch a breath, it may well result in AAPL performing pretty much as Zach says -- just as the stock has performed as Zach has predicted in his past essays. I still expect is to dive lower over the next quarter or two, just as Zach does, as sales inevitably decline because PEOPLE HAVE NO MONEY TO SPEND on consumer electronics.
Apple remains a fantastic company, with excellent products and the best management team on the planet (name me one other company with the breadth and depth of top-management talent that Apple has), but the stock markets remain in bear status, deflation has not yet been tamed, and it is shrinking the global economy day by day.
Happytalk AAPL fanbois who can only see their beloved AAPL marching ever higher, ignoring the state of the global economy around them, are invited to pave the way lower with their money, by becoming the other side of my downside trades. As they say, making money and being successful is the best revenge.
You can name-call all you like about those who predict AAPL will decline in price, but how much money have you made in AAPL over the past 12 months? The chart at the top of this page suggests "not much". Trash-talking doesn't move stocks higher or lower, turn off CNBC and take a look at the Real World. Go run over to Minyanville and read "Emotion is the Enemy" [www.minyanville.com/ar...] repeatedly, until the message sinks in.
"Apple will NEVER do a stock buyback or pay a dividend."
"NEVER," huh (capitalized too)? That's what a lot of knee-jerk Apple-defenders said about Apple not switching to Intel, not making a low-cost Mini, and half a dozen other dead-wrong-but-self-as... proclamations from the claque. I take such statements to be a contrary indicator and dare to say, on the strength of them, that Apple will institute a buyback plan next week.
"Doing so would seriously weaken the company."
In other words, every company that pays a dividend is damaging itself. Nonsense.
"Apple's cash hoard means its stock can NEVER become worthless, unlike other companies. Currently, the cash hoard means Apple's stock can never go below $30 a share."
That's penny-wise. Apple would be better off, in the long run, if it had accumulated only half as large a cash hoard by pricing its Macs lower, and thereby acquired a larger market share before the recession hit and Microsoft closed, or reduced, the window of opportunity for rapid market-share growth of the Mac with its Windows 7. The 7 million (??) or so additional Mac owners would stay in the Mac camp and be buyers of Apple's future Mac upgrades. Apple lost an opportunity to burst out of its niche into a double-digit slice of the market. Too clever by half.
"Apple's cash hoard also allows it to fund projects or buy companies (like nVidia, ahem) to make it much more competitive despite a recession or depression."
If Apple had only half the hoard it has, plus no debt, it would be plenty strong enough to acquire other companies. If it had to swallow an unusually large company, it could do that by swaps of stock, or by issuing bonds (if necessary)--100% cash up front is not required. A growing company’s stock is always desirable in a merger or acquisition.
It's always:
-If the market goes lower, here is where Apple has some support. Like when you said there was a good chance we could hit $60 in November.
-If the market moves higher, here is where Apple has resistance.
Stop dancing and take a stand. That's what stock writers do. Tell us where Apple is going to be in the next 3 months, 6 months, 1 year, 3 years. Give us your price target. Something! Anything!
Otherwise, this is mindless ranting about what may or may not happen and how the technicals may influence a move one way or the other. So of course, you "have been right." You take both sides!
I have invested with Apple in the past and objectively reading this article and Zach's previous ones, I have noticed that Zach has been consistently neutral/negative on Apple stock.
The CEO's health IS important. One of Apple's biggest assets is its brand, and justified or not, Steve Jobs is a part of that brand. Anytime top management leaves a company, the company and its stock usually suffer to some degree. Why should this case be any different?
Apple was a crappy, dying stock just a few years ago until it was revitalized by the iMac, iPod, and now the iPhone. They will need to keep up their successful innovative ways against fierce competition in the face of a battered economy.
They had a great year last year and their P/E is still 17+. This valuation is completely justified, but these are not normal times; there are a ton of great tech companies going at MUCH better valuations (Cisco, Intel, Nvidia, Oracle, etc, etc, etc). Apple deserves a premium, but at that much more than these talented blue chips?
Please get off your fanatical bandwagon once in a while and show the author some more respect.
People also trumpet AAPL's cash horde as a strength. Adding my tuppence I am worried that this strength may truly be a weakness. That cash mountain has been building for years. While it is valuable in current climate, does it have to be so large? Will AAPL *ever* be able to innovate more quickly and start to draw down that cash pile, create new product and drive the stock price up?
I don't want a share buy back or dividend, if I wanted that kind of performance from an investment vehicle I would buy a bond.
Is AAPL the new MSFT?
Just shaking my head at that ridiculous idea.
Look at it like a BIG SALE
The fact is nothing is going up..at least for the next while
THE RALLIES are ALL false..
Companies like Apple that get crushed down by the other bad others will only rise bigger when this mess blows over!!!!
Whenever anyone publishes anything remotely negative about this company, Apple fanboys/investors vehemently discredit the author and fall on him/her like a pack of rabid dogs. "
AAPL closed at $90.13 Jan 30, 2009. Since then it continues it's way up, now at $163.89.