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If Apple Re-Ignites, So Will the Market
A ZeroHedge reader who goes by the handle “Kito” took me to task last week for straddling the fence. On the one hand, he observed, I have been predicting a huge Dow rally to 14969. More recently, though, in a commentary published last week and rightly seized on by Kito, I said to hell with the bullish target; with Apple, IBM and Google shares getting bludgeoned, it’s only a matter of time before the bloodshed spreads to the broad averages. So which is it, Kito has asked? Am I bullish or bearish? I dodged his question, suggesting that he “ask around the neighborhood” about my track record as a forecaster. This was disingenuous, since it implicitly asked him to excuse my waffling merely because my subscribers would likely attest to the accuracy of my forecasts in the past. As we know, however, in the forecasting business a guru is no better than his last prediction. With Kito’s criticism sharply in mind, as well as the best interests of my subscribers, I’m getting off the fence to offer as clear a forecast as I can — one that I hope will be illuminating and useful to all.
Let me first say that no chartist possesses a crystal ball. Technical analysis cannot divine the future; it can only help, if combined with horse sense, in estimating the odds of various speculative scenarios. It is in that context that I see the performance of Apple’s shares in the week ahead as crucial to the stock market’s performance for the remainder of 2012. I’ve been monitoring
Apple closely because I consider it to be the key bellwether for the U.S. stock market. If this assumption is correct, AAPL must get in bullish gear this week or it’s going to weigh on the broad averages for the rest of the year. Stocks are already under pressure because some big companies – most recently McDonald’s, IBM and Google – have reported lower quarterly sales for the first time in three years. If this represents just a temporary dip in business rather than a trend, we should see Apple erupt before Thursday’s earnings announcement. Moreover, if such news is indeed coming, the company’s shares should bottom this morning or tomorrow at the latest, and then embark on a 150-point rally to new all-time highs by year-end. I am also predicting that if the rally comes, at least a third of it (i.e., 50 points) will occur by Thursday night.
Some Negatives
Whatever happens, Apple has a big week ahead of it, including not only the earnings report, but also the introduction of an important new product, the mini iPad. Regarding sales, the company had better not disappoint, since AAPL shares are already under pressure following a 13.4% decline over the last 30 days. Not surprisingly, weakness has flushed out some possible reasons to shun the stock, including growing competition from Android-powered phones, most particularly Samsung’s Galaxy. Others believe Apple has become too dependent on a few products that have saturated their respective markets. And there’s also the reported reluctance of carriers to continue subsidizing iPhone buyers because the practice has become too expensive for them.
With the stock falling hard in recent weeks, it is easy to overweight these negatives and underweight the positives. But the bullish case remains formidable – sufficiently so that we shouldn’t rule out the possibility that Apple is about to stage a rebound powerful enough to pull the broad averages higher into 2013. How’s that? For one, the carriers, most recently Verizon, appear to have changed their minds about eliminating iPhone giveaways. Considering that service contracts required of iPhone buyers can generate $1800 for a carrier over just two years, it’s easy to understand why they have had a change of heart. For its part, Apple Inc. continues to enjoy such high demand for iPhones and iPads that it has been possible to maintain, by far, the highest profit margins in the business. This fact was probably not lost to Google shareholders who drove the stock down by nearly 90 points last week.
Low PE Ratio
Putting aside the seemingly insatiable craving for its products, strong demand for AAPL shares has faltered only for brief periods in the last decade and seems likely to return with shares currently priced 13% below September’s all-time high of $705. Even if buyers don’t come stampeding back, institutional investors, who own roughly 700 million shares of a 950-million-share float, are unlikely to bail out at these levels for a couple of reasons. For one, how many world-beating companies can be bought for just 10 times earnings? In that respect, Apple at $600 a share qualifies as a fire-sale bargain. And for two, Apple stores have been packed with buyers since the release a month ago of iPhone5, making truly bad or even merely disappointing earnings a bad bet. Whatever happens, we’ll stick with our prediction that Apple’s performance this week is going to determine how U.S. stocks finish the year.
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While AAPL still can move the averages, it will not move the stocks of companies that are missing on earnings. We are late in the game. To call for a 12% move up in the averages from here is quite bold. I would rather mind my time in cash or even short select consumer discretionary stocks.
Ben and Draghi gave the markets what they had long been waiting for: unlimited QE3 and euro bond buying. I expected a fairly enthusiastic response, but there was only a very lukewarm one. That was when I decided to get out. If anything could have juiced the market, it was QE3. And it didn't. Danger! Danger! Will Robinson.
The markets have had a great run in the past few years and it is time for a correction, maybe a crash. If you have gains, cash out now like I did at the current tax rates. Earnings are coming out weak and the fiscal cliff is approaching. You'll be able to buy back in a few months at a lower price.
The issue is simple, the market for high-tech gadgets is not growing very rapidly because wages globally are not increasing. Apple products come in at a higher price point than competitors. Any new consumers entering the market are most likely to purchase the more-affordable competitors: i.e. Samsung Galaxy. Apple is unlikely to participate in any growth in the market. Why then is Apple the "bellweather?" It would seem to me that Google, Samsung, or most likely Nokia are the bellweathers for technology in the future: especially Nokia. BTW in "emerging markets" (at least those in South America with which I am familiar), Nokia enjoys more brand recognition and popularity than Apple.
Fundementals and charts in this rigged market?
Better off with chicken guts and astrology. At least these methods don't require a logical framework to be twisted into pretzels.
Prediction is looking pretty good today ... but I just don't believe the company can grow from here, selling nearly 1b devices annually in a hyper-competitive market at fat margins. The risks from that position are to the downside. 10 multiple makes sense to me, margins eventually have to fall.
And what's more, we are going to experience devastating deflation.
I agree -- and this could be particularly bad for AAPL, since the company's pricey products suck up such a big portion of buyers' discretionary income.
Whip-It logic.
Have another balloon!!
Well Bruce Krasting caused the 87 crash, maybe Rick can re-ignite AAPL!
Bruce should have ignored his boss' order to sell?
Ask yourself why the central bank of Israel bought some shares of AAPL. And please do not go into tainted anti-semitic bullshit. But just as a matter of thought process. Is it an investment? What is it? WHat drives the entire market up and down? When are the elections? Is AAPL owned a lot? WHat a 10% continuous of hte stock market would do to an incumbent president? Help hurt? A central bank has a lot of money, why buy tech stocks? Are stocks are reserve assets now, and Gold a tulip? Can you drive the market if you drive AAPL?
I think no central bank should be able to buy stocks including the Swiss central bank, that is distorting the market... And I am absolutely against any dogmatic anti-semitic bullshit, but I should nonetheless ask why a central bank should be able to buy at will a stock which drives teh entire QQQ and the market by extension. Maybe there is a genuine purpose, I think the central bank should also disclose that it will tell everyone when it is selling, the same way it did tell everyone it was buying at the beginning of the year at 400 USD.
I am against alll monotheist religions when they become a dogma and a political instrument, so everyone can hate me, I do not care. I am not very fond of neither the fundamentalist Christian, I dislike the muslim fanatics, and I do not like much the Iranian mollahs not the Saudi Wahabites.
He hated it at 60$ loves it at 622$
They stretch the succes of Mr. Jobs.
They are doing things he wouldnt have done.ipad mini?WTF.
After that....nothing.
'After that,' supposedly, is iTV. But it seems unlikely that Tim Cook will be able to negotiate the same take-no-prisoners deals with -- separately - TV new, sports, entertainment and movies as Jobs negotiated with a music industry in the throes of death.
Apple's main growth is behind it.The iPhone 5 does not offer much to get excited about. The fanboys will buy it but the regular user is not going to go out of their way to get it. Like Mr.Softy,another once exciting tech company that generates loads of cash..Apple will find a range and trade there. As for the broader averages they have seen their highs for the year.By January 01 2013 the averages will be much lower.
this is precisely why the smaller iPad is being released. to get the fanboys to update by downgrading and to bring in new adopters in terms of 1. price 2. size like what they are currently reading ebooks on 3. the (re-re-re-) hype.
and please do not underestimate the iPhone5. while it is in no way a slam dunk, it could very well be discounted in the future with associated "sales" increases...once upon a time in the 80s sales of Dianetics surged at bookstores and no one knew why, until it was discovered that Scientologists were selling back to very same bookstores the copies that were already sold....it's a cult thing.
remember, in today's bizarro market model a co could lose money on every unit sold, but if volume of units sold is high then it's worth many factors of a true PE which no longer matters anyhow.......
True good Doctor. They look much more like a product refresh cycle company now........
The flaccid consumer just needs a short rest and a change of mistresses. The bosses are on it.
And don't forget to change the mattress when you change the mistress. Both can get worn out very quickly......
A very expensive toy company has only so much time before its magic act is up.
Good Point TDS. Even though I disagree with Rick's assessement of "the state of Apple" , especially after the Map App fiasco , the Foxconn Riots and Apple speccing a material that is too difficult to work with in Manufacturing, I still think that it was good of him to be forthright and honest and come out and plant a flag of exactly where he stands and what needs to happen for that prediction to come true.
That's the kind of Analysis we come to hear. No of this namby pamby crap. Tell us where you stand and then lets debate it.
Time will tell whether Apple has learned a useful lesson from the map fiasco, but it would appear that iPhone buyers are going to let it pass, since the furor died after about a week. But Apple may have taken a wrong turn karmically by suing Samsung over trivial design issues.
A "bellweather" stock that could lose half it's value with one bad product cycle. And, news flash, the genius behind the brand is gone.
NASDAQ teetering on a few stocks and companies that in the tech cycle could be superceded by the whims of millenials and the A.O. (Always On) generations in a 6-12 month span.
The astronomic growth in valuations of Apple and Google are based on SPECULATION, they are speculative bubbles no matter what their earnings are.
OVERVALUED.
I second EB! They are overvalued and it's almost impossible to know the true price of equity now
I'd say at this point it's totally dependent upon Foxconn's ability to maintain their market-leading enslavement of human capital.
Turkey sandwiches bitchez!
more iBubble please!
You know Zerohedge rocks when people are responding to the rabble in the comments, and not just the Durdens!
yeah!
"Kito, please pick up the white courtesy phone located in the lobby."