Market Analysis

$AAPL Check

As the asset bubble roars on it is time to check in on $AAPL, one of the 4 horsemen of the Megacapocalypse. Four stocks not only controlling and dominating so much of the market cap of the overall market, but by extension their oversized relative weight also greatly influencing the performance of the indices, such as $NDX, $XLK and $SPX.

$AAPL not having grown much in terms of earnings over the past few years but in multiple due to a relentless buyback program financially engineering EPS growth where there is little organic growth, and of course the ongoing liquidity injections by the Fed, the stock has become somewhat of a safe haven for everybody. Index funds, hedge funds, ETFs, large asset managers, big investors such as Buffett’s Berkshire, the SNB, you name it, everybody owns $AAPL.

Along with record long positions in futures and call options it’s fair to say sentiment remains unabashedly bullish:

Risk on. No stock is too expensive.

In process of the relentless rally in markets and in $AAPL, the stock now has a market cap north of $1.4 trillion with a forward multiple of 20.6 and a PEG ratio of 1.93 following arguably the largest and fastest market cap expansion in history. There simply is no market history that shows such a high market cap stock with such a high multiple being a sustainable proposition. But there it is.

Folks keep piling into $AAPL no matter what.

What do the technicals tell us? What they’ve been saying the past few weeks: That the stock is massively extended, technically stretched, and at high risk of major technical reversion.

Firstly note the recent trend remains fully intact:

There is an upper trend line that has held as resistance and new highs have since come on negative divergences. None have mattered so far and the stock is no longer overbought on the daily chart which means it has room higher as long as the support trend holds.

The larger time frame charts keeps screaming caution and technical reversion risk, but nobody’s seemingly listening, too strong is the momentum at this stage.

What are the technical risks and potential targets to the downside?

On the weekly chart we can note not only the historically tight and steep channel, but we can also note the pronounced negative divergence:

New highs on negative weekly divergences have led to pullbacks or larger corrections.

The entire rally since last summer is entirely uncorrected and a break of the channel would spell trouble for the stock.

Initial corrective risk includes a tag of the monthly 5 EMA which the stock now hasn’t touched in 2 months and currently resides at $290.

And it is the monthly chart that highlights how outsized the recent move has been. $AAPL, like $NDX and other key stocks, is currently above the monthly Bollinger band:

Trading far above the monthly Bollinger band has led to sizable reversals in the past.

The same also applies to the quarterly Bollinger band:

Currently the stock is entirely outside the quarterly Bollinger band. Precedence of sustainability is exactly zero suggesting $AAPL has, at minimum, an appointment with its upper Bollinger band currently at $288. In combination with the monthly 5 EMA currently at $290 suggesting confluence and hence a reasonable eventual reconnect.

The central bank ignited bull run since last summer shows its excess perhaps most profoundly in the yearly charts and I’m probably one of the only people, or perhaps even the only one, that points to these charts:

Whether log or linear is irrelevant, the data is the same. There has not been a single year in $AAPL’s history where the stock has not at least reconnected with the upper yearly Bollinger Band. The upper Bollinger band is currently at $261. A technical reconnect to the upper Bollinger band would be technical normal, not extreme. What is reflective of how extreme the past year has been is that a simple reconnect would now constitute a 20% correction in $AAPL. Just a basic reconnect. And I’m not even outlining a yearly 5 EMA reconnect which also would be part of the normal historic script.  But 5 EMA reconnects don’t happen every year. But upper Bollinger band reconnects, they have happened every year.

For now, the daily and weekly trends remain intact, but once they break, know the breadth and scope of what could technically happen to $AAPL. First stop of support and a potential bounce play would be the $288-$290 zone. Historical risk is a reconnect to $261.

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Categories: Market Analysis

4 replies »

  1. Thanks, Sven. What’s nice about an Apple reconnect is that it would drag the S&P and Nasdaq into at least a temporary pullback as well, which might help to restore some sense in the market. Either that, or everyone will panic and make it something larger.


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