In reading "The History of Nations," we find that, like
individuals, they have their whims and their peculiarities, their
seasons of excitement and recklessness, when they care not what
they do. We find that whole communities suddenly fix their minds
upon one object and go mad in its pursuit; that millions of people
become simultaneously impressed with one delusion, and run after
it, 'til their attention is caught by some new folly more
captivating than the first.
Extraordinary Popular Delusions and the Madness of
), once the darling stock of the investment world, is down more
than 35% since reaching its peak of $693.21 in September 2012.
Interestingly, this price peak came about a year after the
fundamentals started indicating things were headed in the wrong
direction: Apple's iPhone and iPad profit margins actually peaked
in the second and third quarters of 2011, respectively -- in fact,
iPad margins are now less than half of what they were at that peak.
And while some investors bought Apple because they genuinely loved
and believed in the company, more and more fund managers began
buying it simply because the price seemed invincible and destined
to head higher forever. So despite the falling margins, the stock
fell victim to its own momentum and entered a blow-off parabolic
rally in early 2012.
It wasn't too long ago that it was still fun to say "Apple
the market," but that saying no longer applies. Since autumn of
(INDEXSP:.INX) has been in nonstop rally mode, but Apple's been on
the outs. And as is so often the case with parabolic rallies, the
stock gave back all those late gains with equally-blinding speed.
In the chart below, we can see that Apple and the SPX used to be
fairly well-correlated, but recently they've been moving in
completely opposite directions. Note the chart is logarithmic
scale, so the recent decline in AAPL doesn't look nearly as
devastating as it's actually been for investors, most of whom do
not have the benefit of being able to spend "logarithmic money."
Click to enlarge
I didn't call attention to Apple simply to illustrate how quickly
"darling" can turn to "ugly" in the investment world (though there
is a broader lesson to be learned here); I called attention to it
because Apple looks like it finally has an opportunity to put
together a more meaningful bounce.
I'm not certain it will, of course, but I've put together a couple
charts which should help us figure out where it's headed. Let's
start off with the daily: I'm inclined to think it has more bounce
left in it because the rally from 382 appears to be cleanly
impulsive (meaning it has five waves). There is only one way a five
wave rally could fit in this position and
have prices ultimately head higher, and that would be if this
pattern is a somewhat rare "running flat" correction -- so I have
to favor the odds that the rare beast isn't the one who's shown up
at the party this time.
Now, there are two ways we can get to higher prices: The first is
fairly direct, and is shown in blue below. The second heads a bit
lower first, but should remain above 382 (shown in black); if AAPL
sustains trade below 382, then all bets are off. I've noted the
trigger levels to watch, and a series of corresponding trigger
targets, on the chart below.
Click to enlarge
Zooming in on a five-minute chart of AAPL, I'm unable to rule out
either path until the market makes its next move. Sustained trade
below 430 would hint at the black path above, while trade below 418
would largely confirm it.
trade above 446 in the near future would suggest the blue path.
Click to enlarge
There's been no change in SPX, and it still appears likely the
second target of 1680-90 will be reached -- honestly, SPX has been
kind of boring to write about lately, which is why I decided to
share some of my chart work on Apple. Once SPX claimed the 1600
zone, we pretty much knew to expect 1640-1650; once the
KBW Bank Index
(INDEXDJX:BKX) claimed 61.06, we knew to expect 1680-1690 SPX.
There's been little in the way of excitement since; and that's a
good thing for anyone who got long at the breakout of 1600.
The only thing I'd warn here is that this is the type of market
that can lull bulls into a deep complacency, and markets like this
can become ripe for "an event." Always remember the old market
adage: "Bears take the elevator; bulls take the stairs."
Click to enlarge
In conclusion, SPX has come a mere five points from the target
zone, and barring a surprise, presently looks reasonably likely to
reach it. Assuming we get there, we'll reassess the outlook at that
point. Meanwhile, Apple may present an opportunity -- and if
nothing else, there are some fairly clear signals and levels to
watch. Knowing when and where the odds are shifting in order to get
away from a losing trade can be just as important as being able to
"predict the future." Trade safe.
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