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Apple And The Analog Bubble Theory Or Why A Price Target Of $690 Makes Sense!

|Includes: Apple Inc. (AAPL)

Apple's magic run over the last few years is mind boggling to say the least but even the fact that it has become the largest company on a market cap basis does not seem to keep its share price from reaching new highs every other week. The stars seem to be the limit, but wait have we not heard that tune before?
Now don't get me wrong I am one of the largest Apple fans there is and I have been for two decades, which is the part that may be slightly unusual. Apple is a great company and for the share price the sky is the limit which is usually a great time to try to apply the Analog Bubble Theory. Some of the readers may remember that we have very successfully applied the Analog Bubble Theory a year and a half ago to the price of silver to call the silver top in time and while there is no guarantee it still gives a pretty good guidance to where Apple might be and where it is heading in terms of past bubbles. Now many will instantly say Apple is no bubble because it is too cheap and generally that is right but when you are the largest company in the world then a similar law of large numbers applies anyway. If you would compare Apple's market cap of around US$ 560 billion with the GDP of countries according to Wikipedia then depending on what list you use Apple is now the 19th largest country in the world about even with Switzerland and ahead of countries like Sweden, Saudi Arabia, Norway and Poland to name a few. It is almost twice the size of Greece which makes you wonder why the media does not focus more on the stock market rather than some troubled small countries.
In any case you get the point Apple will soon face the headwinds of being the largest fruit on the block and one way to get a good idea of where we are is to look at the Analog Bubble Theory, which you can see in the chart below. Apple is in green and the Nasdaq of the year 2000 during the bubble is in black. If Apple continues to follow the Analog Bubble Path then it has about 3-6 weeks and another 15% to go. Apple should reach a target of somewhere around $690 before reaching a top, possibly a double top. Then things could turn quickly the other way. I doubt by the way that Apple's fall after the rise to the top and a final acceleration would be as troublesome and long as the fall of the Nasdaq was during the era, but it could still turn into a significant sell off of around 25% before starting to go sideways. The reason why I would not expect more of a sell off is because Apple is not as expensive as the Nasdaq was at the time and because Apple is becoming more of a victim of its own success rather than a story full of hot air.
Apple remains a great story perhaps one of the greatest of all time but even Apple will eventually find out that being the biggest draws some unwanted attention to an otherwise awesome story.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.