A Worm in the Apple?

So FORTUNE magazine has crowned a CEO of the Decade, and it's not surprisingly Steve Jobs, head of Apple (AAPL). No doubt Mr. Jobs has indeed done a wonderful job - even I recently joined the iPhone revolution, and it's a fantastic product.

The problem for a stock's price is that the market moves based on EXPECTATIONS, and this cover signals the bar has been raised significantly for AAPL shares here going forward. The last such cover for AAPL and Jobs came in late 2005 thanks to TIME and BUSINESS WEEK, near $70 on its way to $50 over the coming 6 months (though it was still holding its bands at 50 which caused the support there - see below).

As you can see on the monthly chart, using a twist on the traditional 20-day Bollinger Band, I plotted an 80-month Bollinger Band (with 2 standard deviations) and the 2 closes in a row over the band back in late 2004 under $13.50 a share was indeed a golden buy. But now with the stock a 15-bagger from those levels, you can see AAPL is doing battle with its upper 80-month band, now around 203. The stock would need 2 monthly closes above there to renew potential bullishness, and with the cover story suggesting the end of the uptrend is near (usually the stock can trickle up for another month after a cover, but in the following 11 months it lags the market), I'd suggest AAPL devotees consider strategies to hedge their positions over the coming year.

Apple (AAPL) Monthly Chart with 80-Month Bollinger Bands

Of course, with the money AAPL shareholders have made, the common human behavior is to see through rose-colored glasses all the things that could go right, rather than the possibility that even the slightest misstep could lead to a piling out of the stock. We'll see, but I'll bet that while the numbers on earnings and sales will still look impressive on the surface, Wall Street will find reasons to be disappointed in AAPL shares in 2010.

Disclosure: No position or recommendation in AAPL currently.

Comments

[Nextel Accessories]

hmmm....makes you wonder if apple can keep this machine going in 2010

2009 Nov 20 04:16 PM

[User 188258]

Wow! To suggest that because a reporter decides to write an article about a CEO that the stock will now go down (because it did once before) seem s to be more than two standard deviations from reality.

2009 Nov 20 04:17 PM

[See through it]

The basis of your article is that Steve Jobs is being recognized as the best CEO, so it's time to sell APPL? You back this theory up with a chart that is strong to the upside. Apple is trading at 20 times their trailing CASH earnings and grew those earning over 50% last year in a recession. They also have over $30 billion in cash and no debt. Apple has ~3% of the worldwide cell phone market and ~7% of the WW PC market. Such a low market penetration enables many years of future growth. What other companies have as bright a future at such a LOW valuation? Don't business fundamentals and valuation matter? Shouldn't you do more work before giving advice?

2009 Nov 20 04:32 PM

[wada]

"I'll bet that while the numbers on earnings and sales will still look impressive on the surface, Wall Street will find reasons to be disappointed in AAPL shares in 2010."...and I'll bet you wish you had more hair...and a real name.

2009 Nov 20 04:46 PM

[Techtrader10]

While I have never used the Bollinger Band theory, I do understand what the author is saying about the magazine cover. Its the kiss of death for a stock. For those of you who are not supersticious, there is no need to worry. For those of us that have seen it happen too many times in the past the cover and story comes at a time when the stock has hit a new high on less than exciting news and a less than exciting economy. Apples computer sales are soft, the iPod has no exciting new models, and the iPhone seems to have a new competitor coming on the market every week. Verizon has also been doing a very good job of showing people why they should be using a smart phone on their system and not ATT (the carrier for the iPhone). So no one compelling reason to say Apple has topped out, but many small reasons to make the case. As we all know stock price is a function of anticipation. Look at the stock market since March, stocks have priced in an economic recovery which has yet to show it self. While I currently have no position in Apple, long or short, I suggest people still long the stock do as the author of this article suggests, look into ways to protect your positions in the stock.

2009 Nov 20 05:00 PM

[Julian Ivan-Alexander]

I think Price Headley is the "real fake steve jobs".. take a look at him, now imagine him looking stern. Add the glasses, and the pensive look.

Oh, and a compelling argument, which he singularly lacks in the craptapulastic piece of scatoramic simplistic analysis.

Voilá! Steve's alter ego revealed - the diametric opposite of the real thing.

Jesus H C... to paraphrase a well-worn expression, "those who can make money, those who can't write about people who can."

PS - check out how many times Apple has, one way or another, featured on front covers over the last 20 years. Yet still its up several thousand percent. Game over Headley.

2009 Nov 20 05:20 PM

[wada]

Wow, a magazine cover can mean the kiss of death. Ooooo, be careful, Sarah Palin!

2009 Nov 20 05:25 PM

[SiliconValleyJoe]

I know nothing about Bollinger Band. I do have questions regarding your claim.

"...hit a new high on less than exciting news and a less than exciting economy..."
True in general, but how does that apply to Apple? It must be losing money? Losing sales? Lowering revenue? Lowering gross margin? Bad quarterly?

"...Apples computer sales are soft..."
Can you quantify this with sales figures?

"... the iPod has no exciting new models..."
So, iPod Touch is not new and not attracting buyers?

"...iPhone seems to have a new competitor coming on the market every week..."
And, how does that quantifiably support your position? In numerical terms?

"...Verizon has also been doing a very good job of showing..."
Please explain how Verizon, whose net technology is US only, whose net does not allow talk and surf is quantifiably, with specific numbers, supporting your position?

"...many small reasons to make the case..."
Please share those many small reason showing Apple has topped out?

I am eager to learn if you are willing to teach with some concrete data.

Thank you.
Joe


On Nov 20 05:00 PM Techtrader10 wrote:

> While I have never used the Bollinger Band theory, I do understand
> what the author is saying about the magazine cover. Its the kiss
> of death for a stock. For those of you who are not supersticious,
> there is no need to worry. For those of us that have seen it happen
> too many times in the past the cover and story comes at a time when
> the stock has hit a new high on less than exciting news and a less
> than exciting economy. Apples computer sales are soft, the iPod
> has no exciting new models, and the iPhone seems to have a new competitor
> coming on the market every week. Verizon has also been doing a very
> good job of showing people why they should be using a smart phone
> on their system and not ATT (the carrier for the iPhone). So no
> one compelling reason to say Apple has topped out, but many small
> reasons to make the case. As we all know stock price is a function
> of anticipation. Look at the stock market since March, stocks have
> priced in an economic recovery which has yet to show it self. While
> I currently have no position in Apple, long or short, I suggest people
> still long the stock do as the author of this article suggests, look
> into ways to protect your positions in the stock.

2009 Nov 20 05:58 PM

[lstream]

Once again this web site uses the standard trick of a provocative title to haul in the readers. Then we arrive and find that actual content and thinking is missing and irrelevant once again. Silly me for clicking on the link.

2009 Nov 20 06:09 PM

[billsjk]

None sense comment from this so called "anal-yst"..........Apple is much better than he thinks.......:))

2009 Nov 20 06:33 PM

[FreeRange]

What absolute nonsense. To try to put some theoretical formula to Apple's growth and potential, especially as it relates to a magazine cover, is perhaps one of the most absurd "articles" this site has ever put up. Laughable, and with no basis in reality.

2009 Nov 20 06:35 PM

[kbear2]

Oh, I get it, from now on I should base my portfolio on whoever is featured on the cover of the latest business/news magazines. Okaaay....

2009 Nov 20 06:58 PM

[AdamC]

@techtrader10

Missed your bearish posts at marketwatch...lol

2009 Nov 20 07:12 PM

[GSlusher]

Is there any hard evidence that "Bollinger Band" analysis works, other than through self-fulfilling prophesy? (I.e., many traders use the same tool and act accordingly, which then skews the market.)

2009 Nov 20 07:20 PM

[JamesApple]

Expectations? They change all too easily and unreliably. I would say Deceptions are more the game companies like Research in Motion played to perfection luring unwary investors into buying Rim's fake market share by doubling up the blackberry sales through Buy1 Get1 blackberry Free deals since 2007.

Before Expectations, there were Deceptions. But, as the ongoing drops in Rim's share prices indicate, you can fool somebody sometimes through raising false Expectations, but you cannot fool everybody all the time.

Rim is expected to go bankrupt by year 2013, and no Deceptions are going to deviate this expectation .

2009 Nov 21 01:42 AM

[Richard Hyde]

Many traders and investors have lost alot of money betting against the Apple machine. Delighting the customer in products and services, producing products with a proprietary sauce that allows for extremely high margins and constant innovation to get those products just right (where is my tablet?) are the keys to Apple success. The stock price will bounce around in the short term and technicians like Mr Headley can have their fun with Bollinger bands etc, but in the long run, Apple will grow revenues, profits and share price. The next ten years belong to Apple as that creaking monstrosity called the Microsoft PC comes to an end.

2009 Nov 21 07:53 AM

[Jon T]

I think I might defer to those who are looking less at historical charts and more at margins, growth levels in market share and likelihood of introducing groundbreaking new products…

ie the writer may be perfectly correct.

In theory.

2009 Nov 21 08:11 AM

[megdoot555]

last week charts appeared on the letterman show maybe

2009 Nov 21 11:48 AM

[Hedged In]

This article makes only one valid point: that a magazine cover MIGHT signal a top in sentiment. Otherwise, it brings little evidence for AAPL investors to be concerned.

But there is evidence elsewhere:
- Windows 7 is a far better product than Windows Vista, so there's more real competition in the laptop market.
- Google is now a serious competitor to Apple with its Android mobile OS.
- There's more competition in the smartphone market due to Android. Motorola, HTC, and soon Dell will all have Android handsets offered via US carriers.
- There's significant pricing pressure in the smartphone market - Apple would never be able to get the deal now that it got with AT&T, and RIMM, PALM, MOT and NOK will battle desperately for smartphone market share because their stocks depend on it.
- Apple's tablet seems to have been delayed to H2 2010.

None of these factors suggest that Apple isn't a great company. But great companies and great stocks are different things. The signs are that AAPL the stock might perform far less well in 2010 than 2009.

2009 Nov 21 12:28 PM

[dr.anthony]

I think the new ethos of web journalism is to be found in the old adage that originated in Hollywood, "any publicity is good publicity." My comment here may, like the chorus of critical comments that I now join, may inflate the ego of this "author" by encouraging him to remark to his friends, "they are talking about my writing...my work...me."

No.

I lament the fact that the author, like so many of his ilk, never sat through a research methods 101 class at a university, never passed a rudimentary statistics class and never was exposed to or understood the high school math that underlay the fact that correlation can never be used to assert causation.

This fellow is nothing alone, dare I say a "bad odor in a whirlwind." Nevertheless, when he is joined by thousands of his ilk who are too stupid to know they are stupid flood the airways, we are all diminished.

Yes, I know, how stupid was it for me to write about someone I consider stupid. You may be right.

dr.a

2009 Nov 21 03:22 PM