Peak Apple? Investor Sentiment vs. The Charts


NOVEMBER 19, 2014 (11:00 PM)

One of my distinct memories from the Apple stock price collapse in late 2012 was the widely circulated post in September of that year explaining why Apple was heading straight to $1,000. Another was the circus of analysts raising price targets, each clamoring for the highest number they could reasonably defend (no matter the assumptions).

With shares of Apple up 53% over the past year (and 17% over just the last month), there has been a resurgence of exuberant sentiment. This sentiment is widely shared by sell-side analysts, buy-side institutions (publicly) and retail investors. Just look at these articles, all posted yesterday on various financial media sites:

And then there are the numerous price target raises over the last several days. Morgan Stanley ($126), Cantor Fitzgerald ($143), Oppenheimer ($130), BTIG ($135), RBC ($120), Hilliard Lyons ($137).

Sentiment is extremely bullish right now, with the iPhone 6 and iPhone 6 Plus running on all cylinders and high expectations for the iWatch. The Mac business is doing well, and who cares that iPods and iPads are becoming less and less relevant. Frankly, I don’t. But the last time we saw this show, expectations were at similar levels and investor confidence was very high. When was the last time investing with the herd was the absolute right choice?

THE CHANNEL. Since the double bottom back in June 2013, Apple has formed a very well-defined rising channel. Each touch of the upper trend line has resulted in a roughly 10 point sell-off within 4-8 weeks. Excluding a two week period in April, every touch of the bottom trend line has resulted in a quick and meaningful rally. It is likely time for a breather.

AAPL

20 YEAR TREND LINES. Over the last two decades, two significant trend lines have been created. Interestingly, we’re reaching the point at which they meet. And that just so happens to be at the $115-$120 inflection point we’re currently sitting at.

AAPL LT

CLOSER LOOK. This is a closer look at the 20 year trend lines, zoomed in to the period following the financial crisis. Arrows have been added to make it crystal clear how significant these trend lines are. Apple shares touched the bottom trend line during yesterdays highs. They have not yet touched the higher trend line (roughly $120). But it’s that lower trend line that has been a more important factor over the past two years.

AAPL MT

CONCLUSION. With Apple sitting at a 17.8x valuation – almost 1.5x higher than its peak value in 2012 – many continue to jump on the bull bandwagon. Based on the historical valuation along with the charts above, I believe it’s getting heavy. That’s not to say it can’t, or it won’t, continue rising. But in the $115-$120 range, the easy money has been made.

As a side note, there are 190,000 open $100 calls in January 2015 (8 weeks away). Those market participants who sold the calls (typically institutions and market makers, i.e. the “smart money”) stand to gain $285 million if shares close at or below $100 vs. current levels in just 8 weeks time.