Who Buys Rotten Apples? Carl Icahn!

Once again I couldn't resist myself from writing about Apple (AAPL), when there are so many other stocks in the tech space that deserve timely attention. This time I have made sure that I write about Apple with completely new reasoning. First, a word of advice to Apple Bulls: Stop banging your horns on the wall! 
I will be discussing my technical view point on recent price action and will provide you with reasonable supporting arguments from a fundamental view point. Please bear with me if I don’t make you laugh this time.
I am sharing my quick technical take on the stock price action that Apple has witnesses lately. But, do read the supporting arguments in the second half of the post.  (click on the chart for a larger view)

1. You can see a long support line that held all through 2009 till early 2013. The extended part of that trend line should now act as a resistance. This extended line exactly collides with current stock price of the stock around $500.
2. Recently, the falling 50 day weighted moving average (WMA) fell through the flat 150 day WMA and then came the rally which was triggered by external news flow. That’s a classic sucker pattern as there is nothing bullish in such a crossover.
3. My view is that this rally is short lived and will be followed by huge declines that will take the stock below $450 without any alarming bells. Beyond that, it could slowly trend lower and retest support around $380. This retest could take easily take 2-3 months time.
By the end of 2013 we could see apple trying to find support around $350 level. That’s also my year end price target on Apple's stock. But that’s not the end of it; I feel this will continue to remain all through next year as well. I had explained that scenario using comparisons in an old post. Apple price Target by 2015
Supporting arguments from a fundamental view point
It’s the consumer electronics especially iSeries of launches in past years that took apple to where it is now. The real question investors should ask now: Can it do it all over again? No wonder bullish investors are enjoying the rally since the past few days, but they should not ignore the obvious that Apple simply cannot repeat what it has done in the past.
Why it could be a Sucker Rally in Apple (AAPL) this time?
Currently the stock is trading around $500 and it’s becoming clear that it’s the hope of fresh announcements that is pumping the momentum. With its price to earnings ratio around 12 many argue that it’s trading dirt cheap. I don’t share the same view, for the simple reason that that they lack innovation and their upcoming products are likely to face challenging times as the competitors are cornering Apple from all sides.
I seriously doubt the sustainability of the recent rally that was partly ignited by Carl Icahn. I can’t imagine how this stock will react if the company disappoints with its announcements in the coming weeks. It you are betting on the success of iWatch, then better be prepared to get disappointed as that product can’t appeal to anyone but tech freaks. Seriously, can that get as big as the iPhone? Moreover, Samsung (SSNLF) is expected to join the race in the smartwatch battle. So far, the sales are good from the iSeries of products, but the concerns of a tipping point in sight are genuine. To make the matters worse, It’s the growing relationship between rivals, Google ($GOOG) and Samsung that further makes wonder if Apple will be able to keep it up. No kidding, this relationship makes strategic sense as the common goal is the punch Apple in the " i ". I really doubt if Apple can continue to grow its brand presence amid choking competition. Last thing you should believe is Carl Icahn’s logic of investing in Apple. You buy it, he benefits!
If you like my analysis, then please use the comments section below to share your views. You can also follow me on StockTwits: http://stocktwits.com/ProJabber and on Twitter: https://twitter.com/ProJabber

Paying hefty brokerage eats up your hard earned trade profits. Don't you think you should look for a bargain deal?


12 comments:

  1. what is the growing goog/damsung relationship? Oracle's recent attacks on Android/Java make a breakdown more likely to happen. Larry Ellison recently attacked Goog for nicking the android system from Oracles JAVA ( whicxh they own after they bought SUN microsystems). Samsung are reported to be thinking about their own operating system, and the samsung/goog relationship could break down, esp e.g. goog are now phone builders themselves after buying motorola.

    also, I think the expectation in the short term is for the iPhone. iwatch is for later, although the possibilities are large. I think the iwatch is not just for techies.It will have big uses in biometrics, public health/medicine etc + wearable tech/nano in the end I suppose. Just because you can't see it does not make it a failure in the making.


    Hope this is not too negative. Thanks for the article. keep it up! I'll definitely keep looking. cheers Jamesingram from seekingalpha
    I'm long AAPL, which may cloud my view, but I would be cautious about betting against icahn AND Soros in the near term

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    1. There's nothing Oricle can do but complain.

      If nothing else, Android is only growing stronger. Samsung is digging it's own hole layering Android on it's phones with it's own bloatware, and less than timely OS updates. While competitors like MOTO, and smaller guys like Archos release vanilla or close to it un-skinned Android. IMO, that's becoming a trend. And, for anyone that thinks a Samsung OS would have any effect on Android. Buy a Samsung phone and let me know if in 4 months if you're using any of the Samsung bloat. You won't! From the software side, Samsung can't compete.

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  2. You are as blind as some of those Apple Bulls.

    You forget one very, very important fact.

    Apple products are owned by the top 1% of the world. Those with education and wealth continue to buy Apple products and continue to feed the Apple ecosystem.

    Apple's current price already support ZERO growth!!!! Think about that for a minute! Apple can continue to spend 50Billion a year on simply buying shares back and the stock price will increase.

    Is this a hyper growth stock??? Hell no!!! Who cares!!! The richest people in the world are not day to day traders (most of them lose it all and I laugh at them over and over). The richest people are those who put serious $$$ into REAL profit making companies and come back 10, 20, 30 years later having the BEST retirements period.

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    1. I remember you. I guess you were the first one who commented on my post when I gave $300 target last year. It was at $600 I guess?

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  3. Carl definitely bought Apple at the wrong time as it has already rallied too much from the recent bottom. However, he made a good entry in Netflix. I agree with you one point that Apple will really find it hard to maintain its brand power amid rising competition. As far as the stock price matters, I can't figure out how to value it.

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  4. I agree, it was very bearish when it rallied above the 50 WMA after a 50/150 crossover. Those bulls have been crushed in the four years since.

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  5. "Those with education and wealth continue to buy Apple products" I hope not, because you're getting ripped off buying the same hardware put together with a lousy operating system. But i guess people pay just for the apple logo on it.. how embarrassing.

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  7. The stock dipped just as expected. But I can clearly see that the bulls are not giving away so easily. This should result in some wild swings, but my stance is still bearish in Apple. Maybe we will see levels below $450 in September itself.

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  8. Finally, Apple stock has dipped below $450 without any alarming bells. So far the stock is behaving just as discussed in the analysis. Now, I expect it to slowly trend down and retest $380. If you have carefully read the analysis, then you would know that I don't expect Apple to hold above $380 if it comes down to retest this level once again. So, year end target of $350 remain intact for now. We can't time their buyback announcements, but rest assured that even if it comes, we will not see a sustained rally. Just a pop and it will too fizzle out just like Carl Icahn effect. Right now I can just say that it feels good to have predicted this move. Till few days back I was getting special treatment from die hard Apple bulls. What can I say! I warned them not to bang their horns against the wall :)

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  9. I receive a lot of bashing for being so bearish on Apple. Last October when the stock was at the highs, I wrote a blog post including some key comparison and gave a price target of $300 by 2015. Now, you can very well imagine what kind of responses I would have received. Anyhow, recently I wrote another post right after Icahn tweeted about his stake in Apple, and suggested that it was a sucker fueled by Icahn. Once again Apple bulls (emotional investors) called me silly names. I still can't believe that bulls are not ready to give up and call it a bad trade.

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  10. you are right. the bulls made a horrible mistake

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Don't keep interesting thoughts to yourself ;)