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Jonathan Wagner
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Coder, with a passion for the stock market. I Have been interested in the stock market since I was 12 and I have dabbled in experimental technical analysis methods such as non-time correlated fractal market analysis. I am the creator of the #1 drawing on maps application the web called... More
  • Apple Harmony 0 comments
    Jan 28, 2013 11:34 PM | about stocks: AAPL

    If you're reading this article there is a pretty good chance you have read a lot regarding Apple (AAPL). Maybe you have read that this down trend is temproary or maybe you think it is overvalued.

    However, there is something a lot of people are not aware of regarding Apple. It has a spectacular spectrum or put another way, it has very clean and visible long to medium term trends. This tends to be the case with most larger cap stocks but Apple's spectrum is particularity pristine. While harmonic analysis isn't very good for shorter terms, it is a useful tool for longer term trends. In summary harmonic analysis allows for the extraction of common cycles that may be, but not guaranteed, present in a stock.

    (click to enlarge)

    Before anyone makes any trading decisions based on the above realize, while cycles are very real, they do change gradually. This means that in three to six months the harmonic forecast could potentially be different.

    Despite this gradual change, it is not unrealistic to believe that this depreciation is being caused by a longer term cycle.

    Considerations
    If you're investing there is always the chance a stock could "settle" near its price to book. Most investors I imagine are probably collecting their earnings and this might have nothing to do with a company's potential and everything to do with portfolio management. This is not necessarily a bad thing since this would create a value proposition for Apple in the next six months for future investors.

    However, Apple doesn't have a too bad of a price to book for a tech stock. If you compare Apple to Amazon (AMZN), it's a crazy value. That said, a lot of the fluff in Amazon's stock price could be accounted for by future unknown potential where as Apple has become a bit more predictable in terms of revenue and earnings growth which could result in the stock settling a bit.

    You need to also consider the market as a whole. While Apple has been depreciating in stock price it started to devalue with the market in October and this means that, at least partially, the stock price depreciation is not linked to underlying fundamental issues. You could believe the underlying economy is a fundamental issue but in that case everything will suffer and not just Apple. There is absolutely no reason to believe that Apple with their revenue growth and also cash on hand will just simply fail fundamentally.

    Perceptive Fundamentals
    How people perceive fundamentals will ultimately affect their trading decisions, however, perception can sometimes be misleading.

    (click to enlarge)

    In the first chart we note that although in recent quarters there has been a drop in EPS quarterly year over year growth, Steve Job's passing did not reduce their growth rates to exceptionally new lows.

    The second chart demonstrates that while it appears that their book value is starting to "round out", if we were to eliminate current behavior of the book value then we would see that there were multiple times over the past 10 years where this same affect would of occured. In some cases it would of appeared even worse such as the period shortly before the blue arrow.

    Outlook
    Apple could continue to decline for another 1 to 6 months. However, I am of the opinion based on other personal analysis that in 2013 we will see the start of another upward market leg which would cut Apple's stock price depreciation time by half or more. It is near impossible to predict exactly where a stock's price will end up at but one thing I can be fairly certain of is that Apple's price will not descend below their price to book unless there is a combined fundamental flaw with the company and market recession, which I think is unlikely. This might be a good time for long term value investors to liquidate, however, if you're a longer term investor there might still be upward movement ahead.

    Themes: Tech Stocks: AAPL
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