Selling Apple? ($ AAPL)

credit: lifehack.org

credit: lifehack.org

Admittedly, it is a fairly untimely moment to publish this post –which I wrote on Friday–, minutes away from the press conference where they will tell about the use for the gigantic pile of cash they’re sitting upon, but anyhow… Apple continues to rise through the roof. Recently I’ve heard a ton of comments on how it has risen from $ 500 to $ 600 in a month, market cap being higher than the whole IBEX 35 or the entire U.S. retail sector.
This is usually a good think, but market analysts will invariably feel an itch that there may be a bubble and an excess of positive news may be just advancing sharp declines. When we look at the data of the last days there seems to be, indeed, reason for concern.

For this analysis I will use some price charts with two additional datasets: full volume (equity trading daily) and options’ total volume (options are contracts that allow you to gain upward or downward exposure to the stock without owning it, which you could use both for hedging against adverse movements or for speculation / investment).
Let us examine the very long term first, from ten years to date. Apple is indeed following a remarkable, historical bullish movement. Volume is lower than it used to be before the crisis, but I believe this to be a general trend in equity and not a sign of price weakness.

Datos de Bloomberg - editada por mjaureguizar.wordpress.com

Data: Bloomberg - editing by @mjaureguizar

Note that Total Option Volume has been growing and reaching, as a matter of fact, new all-time highs in the last days. This is critical.
Note as well the linear upwards movement that’s been taking place since 2009, and the 2012 steep acceleration. We can see this even clearer on a shorter-term chart.

Datos de Bloomberg - editada por mjaureguizar.wordpress.com

Data: Bloomberg - editing by @mjaureguizar

In my opinion, this is a fairly common situation in which investors as a whole are experiencing in a – perhaps accurate! – bullish euphoria (sometimes appropriately called panic buys). Trend acceleration in recent months is the fairest indication in this regard.
Let’s look again at the first issue we mentioned, a large increase in Option Volume. I believe it’s split equally into speculation / investment and hedging. Speculation interest wil increase volatility. In addition, higher hedging is a sign that market pros are taking into account the chance of a drop in Apple’s price. Not so is the analysts’ consensus, very optimistic, usually lagging behind trend changes and particularly in big moves, all of which reaffirms me in my theory.
This theory is that Apple has a good chance of falling, more specifically to display retracement behaviour. Spectacular benefits may very well be cashed in and leave the price at allegedly very high levels, but with a a sharp drop from the $600 highs. To be more precise, I think of a $450 level. Let’s see an intraday chart covering the last five trading days:

Datos de Bloomberg - editada por mjaureguizar.wordpress.com

Data: Bloomberg - editing by @mjaureguizar

We can see that Apple has traded with a gap between $568 and $576 approx., which may be a good signal (the price just jumps above that area) but can also draw a terminal pattern (exhaustion due to the buying euphoria). So if Apple where to fall below the gap it would send a bearish message to the market.

This is just a scenario, of course, but the market is ready for it. Are you?
(many thanks to @danielcunado who encouraged me to write this post)

This post and research is no recommendation on buying or selling stocks and expresses the author’s personal view.

3 Responses to Selling Apple? ($ AAPL)

  1. Folks dice:

    Publicaron en Arxiv hace tiempo un paper diciendo que cuando un valor de pronto parecía seguir una doble exponencial indicaba con mucha probabilidad una burbuja, aunque creo que se refería sobre todo a índices.
    Si te interesa lo busco.

  2. Pingback: Apple in the danger zone – again ($AAPL) « Imágenes Bajo el Cristal

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