Apple Is Still Vulnerable, Could Test $250 in Bear Market

A familiar and often controversial topic over the past year or so has been my very negative forecast for Apple. As you know, we do not buy or sell individual stocks as part of our investment strategies but used to view Apple as THE market leader and now a bellwether stock.

Long-term, nothing has changed in my view, but I do think a potential rally is setting up that could take the shares into the mid $500s. I will discuss this in more detail in the next issue of Street$marts shortly.

Below is the interview I did with Matt Nesto at Yahoo Finance as a follow up to previous Apple segments.

http://finance.yahoo.com/blogs/breakout/apple-still-vulnerable-could-test-250-bear-market-131541939.html?vp=1

CNBC’s Fast Money TODAY in the 5:00pm Hour

I am going to be on CNBC’s Fast Money between 5:05pm est and 5:35pm est today, January 14, discussing my long-term negative forecast on Apple and what it means for the stock market in general.

Apple Turning Around

This morning, you likely received an email with Apple in the subject line and no content. I apologize for that! I was in a Philadelphia hotel room on the way out and I thought I hit “paste” and send. Obviously, my fat little fingers missed a step. When I received it on my phone, my first reaction was, NO! It reminded me of those unscrupulous Dotcom bubble stock touts who would send emails with either the company’s name or stock symbol and little else in the email. These were typically pink sheet or micro-cap stocks that could be easily manipulated. Traders and investors would speculate and buy the stock, forcing its share price higher only to allow the tout to sell into the rise. Some folks call this “pump and dump” and it’s been around forever in the markets. And it is illegal. Anyway, I certainly did not intend to just send the word “Apple” and I would never “pump and dump”! So I am sorry again.

When I got home earlier this evening, I wrote the article about Apple once again. This time as I hit send, the website froze and I lost all of work for the second time today. So I am wondering; is someone upstairs trying to tell me something?!?!

Without further ado, here we go on Apple…

For a long while, as you know, I have been fairly negative on Apple the stock, forecasting a possible 50% to 70% decline by the time the next bear market in stocks ends. It’s not about their products or management, although losing Steve Jobs is definitely a major negative, or any accounting irregularities. As my kids tell me, Apple’s products are incredible. Rather, this is purely sentiment call.

Apple has become a cult stock ingrained into our investing fiber. From a crisis low of roughly $78 to 2012 high around $700, this stock soared into rarified air in fairly short order. It’s the stock everyone is supposed to own according to the masses. Over the past year, whenever I offer a contrarian forecast, people scoff at the notion that their beloved Apple could decline for more than a few days or week. After media appearances where I forecast massive losses ahead, people post nasty comments about me online.

Apple has become the classic story stock of which there is at least one in every single bull market over the past 100 years. Google, AOL, Yahoo, IBM, GE, Exxon, Chevron, RCA, Xerox, GM, Avon, Navistar and on and on.

Can you guess the ONE thing they all have in common?

Ensuing bear markets decimated them 30%, 40%, 50%, 60%, 70% and even 80%! Now, some of those story stocks did recover, like Google, but not to the degree of the previous bull market. In most cases, the companies matured and their best rates of ascent were long gone.

I have heard all the nonsense about Apple’s price to earnings ratio being modestly at 12 and it’s actually severely undervalued. You know what I say? So what! Go look at the P/Es of the banks and homebuilders in 2006 as they hummed along. They were mostly SINGLE DIGITS! How did that work out for them?

Before you stop reading and think this is all just another hatchet job on Apple, stay with me please. While my forecast remains for a massive decline in Apple before the next bear market ends, Apple just hit my initial downside target of $500 yesterday. Why does that matter?

For the first time since June, Apple looks like it is in a position to rally smartly from its $519 close yesterday. At its worst, we saw a 28% decline from $700 to $500. Recouping half that would not be out of the question if the overall stock market remains stable. On the flip side, Apple is not “supposed” to close below $500. If it does, the short-term bullish scenario is out the window and selling will likely accelerate to the downside. That does offer a favorable risk/reward ratio though.

 

Some of you continue to ask why I focus so much energy on Apple. Simply put, it has such outsized weightings in the major indices like the S&P 500 and NASDAQ 100. As we saw over the summer, it can literally carry the market on its back.

For full disclosure and transparency, I do not directly own any shares of Apple. My exposure both personally and professionally is in positions we currently hold in the major indices like the S&P 500 and NASDAQ 100.

As always, I look forward to your comments and questions!

Paul

P.S. PHEW! I finished the article and got it posted without losing it for a third time!

Will the Country Even Function on January 1?

The latest Street$marts has been posted!

http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20121221.pdf

 

The Single Most Overhyped Event Since Y2K

Here is the latest Street$marts that talks about Black Friday, Facebook, Apple, the “dreaded” Fiscal Cliff, how the bull market ends and some evidence of a weakening economy.

http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20121211.pdf

German Courts and Apple

Markets breathed a collective sigh of relief after the German courts ruled “favorably”, allowing the European bailouts to continue.  Apple unveiled its latest iPhone as the stock sits near all time highs.  Both events did not inspire the markets to do much other than digest as they awaited the Fed’s 12:30pm announcement on Thursday. 

By the end of the week, the markets will have digested the ECB’s latest pledge to buy European debt in  a HUGE way, Apple’s new phone, the German court ruling and the Fed’s latest plan for more money printing.  Now that’s a month’s worth of news in one week!

As I wrote about in last week’s Street$marts, http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20120905.pdf, the market was following the more bullish of the two bullish scenarios I spelled out.  At this point, it may get really interesting with all time highs in the Dow just under 1000 points away! 

In the next issue of Street$marts due out next week, I will review the various canaries in the coal mine and see how they are behaving.

WHEN the Bull Market Ends

The latest Street$marts is here…

http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20120905.pdf

Apple in the Spotlight… Again

It’s been a while since I mentioned Apple, but the action of late deserves comment.  After peaking in April with the broad market, the stock declined into May with the broad market.  But when stocks declined further into early June, Apple did not follow suit by making a new low.  Rather, it formed a higher low than it saw in May and that was the first clue that it was ready to rally again.

This week, Apple made an all time high at almost $675 before reversing on Tuesday.  In the short-term, the odds favor some downside, possibly into the $630s, but over the intermediate-term, there should be some upside left before the final peak is seen later this year or early next.

As I have written about before, each and every bull market has at least a single story stock or more.  2007’s top was Google.  2000 was Yahoo and a host of other Dotcoms.  We researched back to the 1929 peak and found similar mesmerizing stocks in every bull market.  Of note, each and every story stock declined by at least 40% when all was said and done.  I believe the same lies ahead for Apple, everyone’s favorite company. 

Just like with Google and Yahoo and IBM and RCA and GM and Zenith, the masses always think that this time is different.  The story stock has no competition and rules the world.  There are always reasons why the stock won’t be like its predecessors.  I get that every time I speak publicly about Apple.  Sadly, investors will be left holding the bag without a plan. 

Don’t expose yourself to that kind of risk.  Put a plan together on when and why you should sell or hedge the position, possibly with options.  Profits are a great thing!  Keep what you have earned!!

The Bubble in Apple

It’s amazing that every time I take the unpopular view on the market, a sector, a general security or a stock, people come out of the woodwork to so easily dismiss the majority view as implausible or crazy, which is fine.  Everyone is entitled to their own opinion and I have always believed that respectful and constructive disagreement is healthy communication.  The “problem” is that it usually and eventually leads to personal attacks or worse from anonymous cowards sitting behind their keyboard.

Here is the final segment I did with my friends at Yahoo! Finance for their show, Breakout.  Some of the emails I have received so far accuse me of treason,blasphemy and heresy.  Hmmm… those are eerily similar to those I received in early 2000 regarding the Dotcoms.  For the record, I don’t believe Apple is equivalent to Dotcom bomb, but the sentiment surrounding it surely is.  To me, Apple most closely resembles Google in 2007.

http://finance.yahoo.com/blogs/breakout/apple-shares-back-below-600-larger-sell-off-161517116.html

There’s an old saying amongst Bible Belt evangelists that goes, “You gotta get ’em in the tent before you start preaching to ’em.” Along those lines, Paul Schatz, president of Heritage Capital, offered some inspiring but cautionary words for the Apple (AAPL) faithful.

The past week has seen the largest stock in the world face its toughest 5-day slump in 6 months. The way forward for Apple is still fraught with nerves, as some worry that all those gains could fast become profits, should investors finally decide to realize them and exit this crowded trade.

“The fundamentals of Apple couldn’t be better,” Schatz says in the attached video. “Apple could go to $700, $800, $1,000 first. I’m not that ridiculous in my notion to think that Apple is going to top right here.”

Yet, in the next breath, Schatz paints a treacherous picture of what a post-top exodus might look like, saying, “Whenever that bull market peaks, I think Apple is headed, minimally, 30% down, probably 50% to 60% down.”

It’s all part of what happens when opinion changes on the ”lone stock standing.” Until now, virtually every fund manager in the world, depending on their style, needed to have anywhere from 5% to 25% of their assets in this one stock just to tread water. Because of the breadth of ownership (71% by institutions), plus Apple’s red-hot performance and outlook, it has essentially been on the do-not-sell list whenever we hit a bit of turbulence.

But Schatz says that is always how it has been with widely-held mega-caps like IBM, GE, or Exxon.

“This is the dot-com bubble all over again. I’m sorry, I am not saying it will never recover, but when you have the whole nation in one story stock, it never never never ends well,” he says, pointing to a dearth of evidence for similar soft landings.

In the meantime, his advice is to own it but keep raising your stop-loss orders, or even start lightening up a bit, because when “go-time” inevitably arrives, it’s not going to be pretty.