Just as major stock indexes are peaking, Apple (NASDAQGS:AAPL)
is already in a bear market.
After hitting its $705 peak in the fall of 2012, Apple hit a
fresh 52-week low today. The stock has now fallen 38% from its peak
(20% price decline from high is generally accepted definition of
"bear market") to the $434 range.
Meanwhile, the herd mentality of piling into what everyone else is
piling into (as they did with Apple) is causing a lot of pain.
"Common sense and careful logic show that it is impossible to
produce superior investment performance if you buy the same assets
at the same time as others are buying," said the great Sir John
Templeton. Too bad nobody was listening.
What do Wall Street's analysts have to say for themselves?
Before we answer that question, here's what their
cheerleading chorus recently said about Apple:
"Wall Street Analysts Increasingly Bullish as Apple Hits Fresh
Highs." - Wall Street Journal on 8/27/12
"Apple seen as 'trillion dollar baby'" - MarketWatch on 8/21/12
"Apple could be worth a trillion in one year" - The Atlantic Wire
"Apple: $1,111 per share and a $1 trillion market cap next year." -
All Things D on 4/26/12
"Apple $1,000 Not Half-Baked" - Jim Cramer at theStreet.com
Question: Has Apple's 38% bear market decline quelled enthusiasm
for the stock on Wall Street?
Apparently, not because Factset wrote:
"Although analysts reduced their fourth quarter EPS estimates
for Apple, they did not make significant changes to their ratings
over this time frame. In terms of target prices, analysts did lower
their estimates in aggregate by about 8%. The mean target price for
Apple is $729.84 today, compared to the mean target price of
$792.40 back on September 30. "
In other words, Wall Street is just as crazy in love
with Apple today as it was at $700!
Apple is still the #1 ranked stock within the S&P 500 with
the highest number of buy ratings. Oddly, it's also #1 in terms of
the largest percentage of upside difference between analysts' mean
target price and its closing price.
Here's the problem: Investors who got caught up in the emotion
and bought at the wrong price, are getting creamed.
Apple is a major component of technology ETFs like the
PowerShares QQQ (NASDAQGM:QQQ) and S&P Technology Sector
(NYSEARCA:XLK). While technology stocks have managed a small YTD
gain, they are still lagging all other S&P industry sectors
long with the broader market (NYSEARCA:SCHB).
When Apple shares were trading around $650, we analyzed the
frenzy and gave our readers specific support levels, that if
broken, would spell trouble for the stock.
In a research piece titled "
Is Apple's Stock in a Bubble
" written on Oct.5, 2012 here's what we said:
"There are many examples throughout history of parabolic
moves up in price that then come crashing back down much faster
than the initial advance. The Dutch Tulip Mania in the
1600s, the Mississippi land bubble
of the 1700s, Gold (NYSEARCA:GLD) and Silver (NYSEARCA:SLV)
in 1980, Japan late 80's(NYSEARCA:EWJ), and countless examples of
individual stock and commodities through the years that had
astronomical price rises only to come crashing back down
eventually. Apple is in a decade long uptrendbut if price were to
fall below $600 that would be a sign that the 4 year uptrend in
Apple has changed to negative ."
Apple's vicious decline is a precursor of what's ahead for the
rest of the stock market. Watch out when a leading stock turns into
a laggard in such a short period of time. In case nobody bothered
to tell you, stocks always fall faster than they rise.
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