) has led the market for the past few years as one of the most innovative, most loved, and most powerful companies and brands in the world. But after years of growing enthusiasm, high expectations, and strong investor faith in the company, Apple finds itself lagging the broader market and snapping a hugely important 551-day streak above the 200-day moving average. And with Apple ranking on top of the world as the largest technology company, making up 20 percent of the Nasdaq 100 index, and having a tremendous weight on the overall performance of the S&P 500, the fate of AAPL in the near-term and beyond could have a huge impact on the broader market.
Apple is up from under $7 in 2003 to as high as $364 this past February. The move itself is an historical feat to marvel at:
With increasing competition, slowing product innovation, and hard-to-meet expectations, however, Apple is facing an uphill battle to maintain its lofty status as a bullet-proof and highly-popular company. There are plenty of hurdles and stumbling blocks in Apple’s way, and the tremendous market cap of the company only makes it harder for Apple to grow as rapidly as it has in the past.
The “Law of Large Numbers” means that as a company gets bigger, it can eventually grow to such an extent that the size of the company actually becomes a negative for growth. I have written about Apple’s huge potential issues at the end of 2010 (see 11 Reasons Apple Could Fall in 2011).
[Click all to enlarge]
Apple is now at a major inflection point, having dropped rather sharply from above $360 in March to just above $310 today. It has been losing momentum and falling out of focus over the past few months, as investors seem to have grown bored of the company. With hugely attractive financials such as a forward P/E of 11 and over $50 billion in cash, Apple makes a great fundamental case as a top-notch investment -- but with weakening technicals and perhaps over-excessive investor optimism until now, Apple may be approaching some trouble. The inflection point Apple now finds itself at is pivotal.
For the past two-plus years, Apple has maintained a very respectable and steady uptrend from a low of under $100/share. It appears that we have approached and possibly breached that trendline, however. If AAPL cannot get back above and stay above that trendline, expect increasing weakness. The declining volume since the start of 2011 also shows less investor activity and potentially a “calm before the storm” effect leading up to the upcoming breakout. The only question is: In which direction will the breakout be?
Another very dangerous technical signal, other than the drop below the long-term trendline and 200-day moving average, is the Candlestick pattern on the monthly chart:
Usually visible near tops and bottoms, the Doji candlesticks that can be seen in the AAPL chart may be pointing to a strong top if AAPL can’t regain its momentum.
Apple’s fate may now depend on the next few days. If it can hold at the $300-310 level and begin the next leg up, now may be a great time to buy. But if it fails to hold at this big inflection point, Apple may quickly fall as investors lose faith and run for the exits. Moreover, Apple’s tremendous market cap and weight on the indices could be a telling sign for the future direction of the overall market. Keep your eyes on Apple, as it could reveal a lot more than just one company’s performance.
I have no positions in any stocks mentioned, but may initiate a long position in AAPL
over the next 72 hours.