Squawk Box at 6:30am

I am going to be on CNBC’s Squawk Box at 6:30am on Wednesday discussing the market’s recent surge to new highs along with some areas of concern and which sectors may be poised for more gains. And no, I do not believe the bear market in Apple is over. It recently hit my second downside target at $400 and is bouncing as it should. More weakness should await the one time darling on it way to $300.

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!

Bulls Draw Line in the Sand

It certainly took a while, but the bulls finally drew a line in the sand and defended their turf after a 9% pullback from the September peak. The day started out like many others during the decline with weakness to new lows. But after the “geniuses” in congress held a press conference and all agreed to compromise (Gee, what a word!), stocks lifted and ran higher into the close as monthly options expiration and short covering ahead of the weekend most likely helped the cause.

Keep an eye on everyone’s favorite or former favorite, Apple, as this stock has been hit with the ugly stick and will likely bounce hard when and if the overall market does.
Next week is a holiday shortened week that has a positive seasonal bias. I would look for the bulls to make some noise early.

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!!

Is Apple in Trouble?

My negative Apple segment on Yahoo’s Breakout continues to be picked up by other websites…

http://blog.experts-exchange.com/ee-tech-news/is-apple-in-trouble-aapl-apple-stock/

After a historic rise to nearly $650 per share, Apple stockhas dipped back below the $600 mark after a steady decline over the past week. As a result, the soothsayers have unsurprisingly emerged from the woodwork with their less-than-certain predictions about the company’s future.

And somewhat ironically, I’m going to make one of my own. But first, let’s see what everyone else is saying.

Apple on the Brink

Noting that he isn’t worried about Apple quite yet, Business Insider’s Henry Blodget gave his readers two reasons to consider regarding the company’s future.

“First, the Apple zealots have gone silent,” he writes. “Earlier, we reported a fact that could be construed as negative for Apple—that iPhone sales had plunged 24% quarter over quarter at Verizon—and we weren’t immediately attacked by a band of crazed fanboys.”

Noting this lack of blowback from the Apple base rather abnormal to say the least, Blodget appears to take such radio silence as an indication of deeper troubles within the company itself.

I, on the other hand, am not willing to let something that could so easily be little more than coincidence pass as one of the only two reasons to be “a bit nervous” about Apple’s long-term standing. Furthermore, consider the nature of the statistic used as supposed proof of the Apple base’s sudden silence.

First of all, the statistic about Verizon’s quarterly iPhone sales dropping is hardly surprising. With anticipation of the next-generation iPhone slowly building as we await an announcement from Apple, it makes sense that sales of the current version will begin to decelerate. After all, why pay full price for an iPhone 4S when you could wait and pay the same price for the iPhone 5 that’s right around the corner?

Second of all, the statistic is limited exclusively to Verizon iPhone sales, not all iPhone sales, which, according to a recent U.S. study, bested Android earlier this year.

Blodget’s second reason isn’t much more convincing. “Second, Apple is not backing off on the flawed gimmick known as Siri—instead it is doubling down,” he continues. “Apple is now paying celebrities zillions of dollars to hawk Siri on TV, when even Apple fans have gotten so frustrated with the feature that they’ve basically stopped using it.”

This, too, would come as a bit of a surprise if it had any factual basis whatsoever. Moving beyond the laughable exaggeration that “zillions” are spent getting the likes of Samuel L. Jackson and Zooey Deschanel to promote Apple’s virtual assistant (because only struggling companies employ celebrity endorsements), his suggestion that iPhone 4S users have “basically stopped” using Siri comes without citing a single report or study. Meanwhile, a study last month by Parks Associates shows just the opposite. The results of the study confirm that nearly 90 percent of iPhone 4S owners use Siri for at least one task a month. Furthermore, when asked if they were satisfied with the virtual assistant, 55 percent of respondents said they were while only 9 percent said they were dissatisfied.

Despite that reality, however, Blodget maintains that Siri is “not ready for prime-time.” In fact, he asserts that the late Steve Jobs would have felt the same way, suggesting that the legendary Apple CEO would have “ripped the Siri product team’s faces off, and then either killed Siri or fixed her.”

I find this difficult to believe. Would Jobs, like any right-minded executive, pushed for improvement to increase adoption? Of course. But berate the product team and scrap it altogether? Hardly likely.

Apple in Reality

Nevertheless, despite his position’s basis in conjecture, it is understandable that Blodget and others sharing his position have gone to the lengths that they have to distance themselves from the outrageous positions of those who think Apple can do no wrong. Those who suggest that Apple could double its value—currently resting at $500 billion—in just a few more years are, as Blodget points out in a separate piece, likely the ones who stand to gain the most from it happening.

In reality, we really don’t know what’s going to happen. Things could spike, slump or remain steady. We really can’t be sure.

“Such is life in the technology industry,” he rightly acknowledges.

Therefore, it’s understandable that amidst the lofty speculation and constant clamor of fanboys (and girls) that some would attempt to balance the scales by making equally supercilious claims in the opposite direction. While Goldman Sachs is urging investors to swoop in and buy up Apple’s dipping stock in anticipation of another spike, there is nothing written in stone that says it will pay off.

Case in point: Heritage Capital president Paul Schatz, who suggested today that Apple’s basic practices “couldn’t be better” than they currently are—possibly reaching up to $1,000 per share—is not under the impression that Apple’s high valuation is everlasting.

“Whenever that bull market peaks, I think Apple is headed, minimally, 30% down, probably 50% to 60% down,” he said immediately following what seemed like a display of unfettered optimism.

But this sobering prediction has less to do with Apple—or who’s running Apple—than it does with the stock market as a whole.

“This is the dot-com bubble all over again,” Schatz suggested. “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.”

Given similar bubbles inflating around other tech companies—most notably Facebook and its $104 billion anticipated valuation—Schatz’s position is by far the most credible.

While current owners of Apple shares (and other bloated tech stock) are asking how high they can push values before an inevitable market-wide selloff ensues, the real question is how this fantasy world of speculation actually serves to benefit the technology industry as a whole.

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.

Apple… Is this Time Really Different???

http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20120325.pdf

 

The Coming Crash in Apple or the Road to $1000

http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20120309.pdf