Apple: Leading the Way to a Total Tech Breakdown 24 comments
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Ok, now before you get your pants in a bunch, listen to what I'm saying here, and take note of the facts. Apple (AAPL) is the de facto leader of the Technology Sector - fact. Apple has broken through its long-term trend line - fact. Apple is currently in a strong downtrend - fact. This downtrend is underscored by its weekly chart, where as I have pointed out in a previous article, AAPL has plotted three successive candlesticks, each with lower highs and lower lows, a pattern known as Three Crows. This is an extremely bearish pattern, and just like the one we saw just before the plunge to 115 this past January.
The leaders of the Tech Sector are know as the Four Horsemen of Tech, they include the leader, which is Apple, then Google (GOOG), Research in Motion (RIMM), and depending on who and when you ask, either Amazon (AMZN) or Baidu (BIDU). Each and every one of these tech behemoths has recently broken through its long-term trend lines. Wait, let me rephrase that, not just broken through, but they have annihilated these long-term upward trend lines! There's absolutely no way to argue otherwise, this is a fact! And there's no way to characterize this as EXTREMELY BEARISH behavior, a TOTAL BREAKDOWN!
The Tech sector, in good times, is usually the leading sector when the market rallies. That's because investors favor growth companies during growth periods, and so that's typically where the money flows to. In tough times, like we're experiencing now, there's no money for growth. Just look at the financial sector, the leaders are falling like flies, and those that are left are hiding in their carapaces hoping they aren't the next to be swatted off Wall Street.
So, what has Apple done recently to combat this market action? An anemic iPod event? What about a refresh to the long-in-the-tooth MacBook lineup? Not on the radar just yet, perhaps in October. Will that be before or after their earnings? Nobody knows.
So what about this refreshed iPod lineup? It would be a gross understatement to say that the "Let's Rock" event got a lukewarm reception. The stock price has simply not held up and analysts were expecting far more, including bigger price cuts. There were no real new products, just some minor tweaks, a little bump in capacities and some software updates to iTunes. Don't get me wrong, it's always good when you get more for less, especially when bugs get squashed and incremental capabilities are added. So far, so good with the new iPhone 2.1 firmware update, fewer dropped calls and noticeably longer battery life.
I think the major thing Apple accomplished with this event is to refocus the branding of the iPod Touch into a gaming platform. This is undoubtedly in an effort to boost sales going into the upcoming holiday season. This is clearly evident by their new Touch commercials.
Ok. So here we are, facing a new week of trading. We had Hurricane Ike devastate the Texas coast line, causing potentially more damage than Hurricane Katrina. The refineries may not come on line anytime soon And we're likely to see gas prices at the pump rocket over $4 per gallon again. Houston, where Apple houses its finance company Apple Finance, is pretty much shut down. This is going to put a big cramp into the Fall fiscal quarter numbers, as retailers, suppliers and support companies will experience big gaps in their cash flow. I understand this pain, because I have relatives in the business. We also have the uncertainty over Lehman (LEH). Will the government bail it out? And right behind Lehman we have AIG (AIG), Citi (C), Wachovia (WB), the list goes on and on.
EDIT (Sunday Eve 9:10 EST): According to the latest news, Lehman suitors have all turned a cold shoulder. It looks like Lehman will be filing bankruptcy. This will undoubtedly push market futures much lower. I would expect a big gap down at the opening bell.
So, what do we do? Man I hate being the doom and gloom guy, but you have to face reality. In situations like this, you have no option but to become defensive. Preserve your capital, do not chase rallies. Are we going to break down right away? Again, no way to tell. The Bears have tried on three successive attempts to break through the 1200 level on the S&P, and each time they were rejected. Which is pretty much a mind blower considering the economic mess we're in. And the Bulls among us hang onto that as some sort of comforting light at the end of a long dark tunnel.
Before you jump on optimism bandwagon, step back and look at what happened this summer. We dropped hard into the July lows, then we rallied, but that rally has faded as we established what appeared to be a bottom. Now we're knocking on that bottom again, now with even more ammunition and a weaker economy. It's very possibly that we might see 1300 again before we take the next leg down, but in my estimation, that's exactly where we are going, with the Tech sector leading the way. And as much as I hate to say it, Apple is the leader of the Tech Sector.
Disclosure: Short AAPL.
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This article has 24 comments:
Another nasty potential surprise for shorts is that IBM or HP might decide within the next six months to either resell Apple products worldwide, or announce a switch over to using them internally in place of ordinary PCs, or both. IBM is said to be evaluating Apples in a pilot program already, and so are many other companies. Even if only a few large corporations followed Der Spiegel in switching to Macs, the first half-dozen announcements would have a powerful (10%?) upward effect on AAPL.
AAPL is in an unusual situation. It doesn't have to outrun the bear--it only has to outrun Microsoft.
The monthly AAPL chart is clearly rolling over, and a 50% retrace of the up move from the Feb 2003 lows in AAPL suggests a price under $100 is likely. The 50 month moving average is now $91.66, so that's a likely support point.
The rich have taken all the jewels, now the poor must pay the price.
Apple make a great line of products - they will continue to outpace all other PC makers.
When the bottom finally comes, presumably when Obama is Pres., then Apple will rise so fast it will be shocking.
But in the meantime, all stocks are going to drop.
The first is breaking records with its products and results, today and in the future.
The latter is hell bent on breaking new lows and defying everything that the former is doing.
For that reason I'm long APPL. At some point it is going to defy all the shorts and break out through 250 or more, it's true worth.
Denying the validity of patterns and indicators is simply living in a dream world.
Zac, you're the epitome of the worst side of boiler room antics of Wall Street. Your scare tactics are disgraceful
I simply call them as I see them. If you can't take the bad news when it stares you in the face, then maybe you should get out of the way and crawl into your own personal carapace.
And as far as the "beautiful cup and handle," I never saw it confirm, thus it never happened. You can't pretend that patterns exist just because you can see them in your mind. Either they're there with confirmation, or they are not!
Anyway, I see AAPL:
below 140 at 90%
below 140 and above 130 at 75%
below 130 at 20%
below 120 at 5%
And I suspect a symmetric triangle will form in the next two months, with the high at 200 and the low at 120.
There.
You call them like I see them, so do I. You're a fraud and scoundrel
What a circus!
"Changewave's latest customer surveys report that general consumer electronic spending is low and trending lower, but that Apple's Mac sales are up and rising by a significant margin.
"The group surveyed 4,416 participants in August to find that only 15% report plans to spend more on electronics over the next 90 days, while 34% plan to spend less. Changewave's surveys are held monthly and serve as an accurate overall barometer of future spending.
.................
""The key takeaway from these survey results," Changewave noted, "is that consumer electronics spending will remain weak over the next 90 days. The one bright spot is Apple, whose Mac sales are outperforming and are poised to once again reach new all-time highs.""
Anyone claiming looking at the state of the global economy and expecting ANY company that makes its money selling to the public to do well over the next 6 months to a year is looking into another universe.
We can rationally expect to see PE compression as an ongoing fact of life, so that if AAPL's earning rise by 20% and the PE compresses by about a third, it will still decline in price.
It really doesn't take a rocket surgeon to see this. What it means is that APPL will be a better buy later than it is today, which is exactly what Zach has said. You can either ride out a downturn and wait for better days (which I think everyone will agree are eventually coming), or sell now and buy back in at a lower price point.
Different strokes for different folks.
Only those buying now and expecting to reap profits over the next quarter or two are going to be disappointed -- I think there's a saying, something about fools and their money, that might apply here.
The only way to have any predictability is to have enough people who believe it and thus make it happen, a self fullfilling prophrosy.
That still doesn't represent reality.
"Anyone claiming looking at the state of the global economy and expecting ANY company that makes its money selling to the public to do well over the next 6 months to a year is looking into another universe."
Yesterday's survey by Changewave, which I quoted above, is evidence to the contrary--from this universe.
"We can rationally expect to see PE compression as an ongoing fact of life, so that if AAPL's earning rise by 20% and the PE compresses by about a third, it will still decline in price."
That's much more sensible. In a different thread on this site, here, seekingalpha.com/artic... , I recently opined that there was room on the downside for AAPL in the event of a bear market, which I expected:
"I think Apple has lots of room to grow, and a solid foundation to do so. In ten years I think it could be worth $1000 without breaking a sweat--i.e., just on what it's got now and in the pipeline, plus momentum. That's the kind of stock one likes to own--at least in some amount.
I do think there are some substantial risks on the way there, such as the impact if Jobs resigned or (more likely) semi-resigned. But I think half of that potential downside is already priced into the stock (at today's $152) [and even more at today’s $140]. At anything below $130 it would be such a Buy that it wouldn't go much lower for long. The other major downside is a big bear market, which I think is in the cards. That, combined with a resignation by Jobs, might bring the price down to $100. But no lower for long, if it could still grow at a relatively healthy pace, as I'm pretty sure it would.
What I think most people are missing is the potential for a "positive catastrophe," to coin a phrase. I.e., an unanticipated stroke of good fortune arising from a Big [resale] Deal with a major company like IBM."
David Lentz wrote:
"... APPL will be a better buy later than it is today, which is exactly what Zach has said."
Not exactly. What his thread's title said was that AAPL would "lead the way to a total tech breakdown." I think it will trail the way, and that nearly any other tech stock would make a better short.
That's especially because I don't think Jobs is seriously ill. I think he's got some non-critical bug that makes him thin (there are such bugs) and that he won't have wasted away by year's end, as many shorts are anticipating. (Dan Lyons Forbes column a few months ago stated that he'd be surprised if Jobs were still around by year's end. If he is, the smart shorts will start to lose faith in their presumption.)
As for Apple’s non-revolutionary iPod announcements, that doesn’t matter much. Apple will have Mac-related announcements within a month. And Apple doesn’t need revolutionary announcements now to hype the stock or the company’s sales. It’s got solid long-term advantages over its rivals, and buyers are catching on to them. All Apple needs to do for the next five years is execute. It doesn’t even need Jobs for that.
Apple’s products are money-savers, not mere luxuries. Digital music is cheaper than CD-based music, and consumers are benefiting from the savings. (Just ask the recording industry.) Macs save money in the long run too—and businesses are beginning to catch on to this fact. The third iteration of the iPhone could take over from the Blackberry in the business world, with some major enhancements (like an optional, plug-in keyboard). Therefore, the downside risk to Apple’s profitability is limited. If its stock goes down sharply, it would be due to emotionalism, which should be fairly short-lived.