For Apple (AAPL) and the most popular gold ETF (GLD), becoming No. 1 turned out to be more of a curse than a blessing. For them becoming No. 1 turned out to be as much a contrary indicator as the often cited front page of Time magazine.
On August 20, 2012 Apple became the largest public company in the US by market-cap. Within about a month, it began its decline.
On August 19 2011, GLD overtook SPY to be the largest ETF by assets, and within about a month began its decline.
Popularity is a fleeting quality, and exposes assets to high risk of disappointment. Popularity should not be avoided, but it should be carefully scrutinized.
When Apple was the only talk in town when it came to phones, and Apple fan-boys were going apoplectic when anyone suggested anything imperfect about Apple or its stock - that was a tell.
With radio and TV saturated with advertisements about rolling over IRAs to gold bullion as the way to avoid financial ruin, and every Tom, Dick and Harry talking about gold, and gold-bugs going extremely hostile on articles suggesting gold would not go up a great deal more in the near-term - that was a tell.
At this point with hedge funds having unloaded lots of Apple, and momentum investors having left the game, and shorts not being a significant factor; and with the valuation and yield parameters of Apple looking pretty good -- Apple may once again be a potentially attractive investment. (The short ratio is only 0.80 for 2% of the outstanding shares.)
Gold, on the other hand, does not look as good. Its appeal as a safe haven decreases as the level of fear and safe haven seeking decreases. A new major threat to world economics could pump it back up, but the markets seem to be in a state of fear fatigue. When interest rates rise, and as stocks are rising and increasing dividends, the cash flow opportunity cost of owning gold increases. Currencies continue to be debased, but as real estate recovers, that may be displacing gold to some degree as an inflation hedge.
We own some Apple and do not own GLD at this time.
The MetaStock charts above have three line studies.
The upper panel plots the position of the closing price within the 63-day, 2 standard deviation price band (a study StockCharts calls "%B" for John Bollinger who popularized the use of standard deviations).
The main panel plots two red lines representing the price levels that are 10% and 20% below the 252-day high price.
The gold line in the main panel is the 200-day simple moving average.
Disclosure: QVM has positions in AAPL as of the creation date of this article (February 25, 2013). 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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