Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 09 November 2012 at 15:02 GMT

A technical look at Apple stock - and the indicators are bearish

Technical Analyst / Saxo Bank

I should have written this article a month ago.  I've been telling my Apple-loving friends and colleagues for at least that long that the stock is overhyped and a bubble and the stock price is about to collapse and – jokingly – that it would will collapse to 200. But can it?

If we start to look at Apple on a weekly chart, then the last major correction occurred in Q2 2012. That is where Apple currently is trading. One could also argue the pre-peak occurred in Q4 2011 at around the 400 price level. Then we still have some way to go.  

Apple weekly revised

The stock has building up RSI divergence and it formed a Doji Evening pattern in mid-September. Since then we have seen a massive sell-off going through the Fibonacci 23.6 support level at around 557.50.

When looking at a monthly chart like we did on Nasdaq Composite, then I would be even more worried if I were an Apple investor. We had the two possible pre-peaks that we were looking at on the weekly chart, but on the monthly chart we have a huge correction in 2008. Compared to the 2008 correction, the other two only look like small adjustments on its way to the stars. Some analysts predicted Apple would go to 1000!?


Apple monthly

Since the big 2008 correction, Apple has been building up a divergence on RSI. It is the same picture we see in almost all other bubble scenarios. It has also formed a Doji Evening Star-like formation, with October month’s candle engulfing the previous two months bodies -a strong bearish reversal signal.

So now the big question is: Can Apple collapse to level where the 2008 pre-peak, was which is at around 200?  That remains to be seen, but looking at previous bubbles, it is certainly a possibility. The next question, then, is how fast can it go?  It took 3-4 years to go from 200 to 700, and since bearish trends usually move faster, the 200 level could be reached within the next 18-24 months. 

Kristiann Kristiann
I understand your points from the technical analysis, but I think you have to count in the fundamentals of the company. Apple is still generating high revenue and has double digit growth projected for next year. Personally I think Apple will fall a bit before recovering.
Kim Cramer Larsson Kim Cramer Larsson
As a Technical Analyst I only look at technical indicators. I try not to get my technical picture influenced by Fundamentals. We have other analyst covering that. I have no opinion about a company's revenue. Also that does't tell you much about the future. A lot of companies like Intel and Nokia back in the 1990's made double digit profit but fell 50-80% from their highs in 2000.
BennyBomstaerk BennyBomstaerk
Hi Kim,
Just started following you, so I thought I'd check out some of your previous predictions. In this case it looks like you correctly predicted what is so far a 90 pt drop from 538, when you made the predition till 448, where it is now. Good!
However I'm wondering: It looks like inbetween you making the predition and where we are now, the stock actually rebounded hitting 585 on nov 26. So 20 days after your prediction, had I followed it, I would would have lost 10%. In situations like that, how do I as an investor convince myself that I just have to wait further.

Also: When I try my hand at these preditions myself, i always set a stop loss on the idea that if the stock goes 10% in the wrong direction, probably my predition was not correct and I need to take myself out of a losing position automatically, not getting my emotions in the way.

So how do you keep the courage to stay in the game, even if it goes against you short term, and what is your opinion on setting stops?
Kim Cramer Larsson Kim Cramer Larsson
Hi Benny
Thanks for following me. Always nice to have an experienced investor following my work.
This analysis is not a Trade Idea as such. It is merely just an analysis of how I see the overall technical picture of an instrument. A trade Idea would include entry and stop levels.
When I set a stop loss on a Trade Idea I never go for an exact number like 8% or 10% but try to find a support/resistance level where at the instrument should not break in order for the Idea to be valid. If that level is too far away then I wait to enter into a position. The stop could be a previous high or low (in a trend).


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