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The Day Apple's Stock PeaksBy
Thursday, September 27, 2012
"Have you gotten your iPhone 5 yet?" she asked.
"It just arrived!" he responded. "I can't wait to get home tonight to open it up!"
This conversation wasn't between giddy teenagers – it was between two adults at a business dinner at the Four Seasons Hotel in Baltimore this week.
It was a great reminder that iPhone hype is at a peak... And that Apple can do no wrong. People just LOVE Apple.
They love Apple's shares, too... Apple's shares traded below $100 a share in 2009 – and last week, it hit $700 a share.
Apple's iPhone 5 might be a great product... But is Apple a great stock to own? When will it peak?
Here is all you need to know:
Apple shares will peak when there is nobody left to buy – when everyone who wants to buy has already bought.
At least in the near term, we may be getting close to that point...
Let me give a couple reasons why...
1. At least 40 brokerage firms cover Apple's stock. Yet there is not a single "sell" rating among those brokerage firms. There is only one "hold" recommendation. All the rest are either "buy" or "strong buy."
If the brokerage clients are taking their broker's advice, they have all bought Apple. At this point, there is basically no one left to buy among their clients – no new source of demand for Apple stock to push it higher.
2. Individual investors love the stock, too.
In the last month, the ratio of the volume traded of call options (bets that the stock will go up) versus the volume traded of put options (bets that the stock will go down) reached an extreme for this year.
This is a sign that everybody who wants to own Apple shares is already in. Again, there is no new source of demand to propel the shares higher.
The old rule on Wall Street – which I believe is totally correct – is this:
"Individual investors are wrong at the extremes and right in between."
When it comes to Apple, individual investors were correct "in between" – from $100 to $700. But are we now at an extreme?
With a pause in the Bernanke Asset Bubble upon us... with no one saying "sell"... with a high volume of call options in Apple in the last month... and with dinner-party talk of how great Apple is... it's likely time for a pause in Apple shares – at the very least.
This isn't about Apple making a bad product. It's not about Apple's shares being too expensive. (For years now, I have told you Apple is a great value.)
It's about the idea that – at this moment – everyone who wants to buy the stock has likely bought. There's no new source of demand to push the stock higher.
Maybe after the pause in the Bernanke Asset Bubble, some of Apple's stock hype will burn off, and you'll get a great chance to get in again.
Personally, I'm not buying Apple shares today.
Trade it as you see fit... but keep your eyes open to these short-term risks in the stock price.
Good investing,
Steve
Further Reading:
Steve hunts for opportunities in areas that are cheap, hated, and in an uptrend. He used that recipe to recommend gold back in 2005 when it traded for $500 an ounce. And he used it again last month to tip readers off to a triple-digit opportunity in another hated sector.
DailyWealth Classic: When the public can't stop talking about an investment, chances are good that it's closer to a top than a bottom. "The next time you'd rather crawl in a hole than explain your investment," on the other hand, Tom Dyson explains, you might be on to something. Read more here: Don't Discuss This Investment at Cocktail Parties.
Market NotesYET ANOTHER NEW LOW FOR CHINA STOCKS The bears are still winning the great China debate...
Regular readers know China is the focus of a great investment debate. Some world-class analysts and traders, including Jim Chanos, say the country is a powder keg of bad government investment... which will cause a huge economic slowdown. On the other hand, you have many "China bulls," who say the bearish arguments are overhyped.
We follow this debate by monitoring the Shanghai Stock Exchange Index. It's one of the most widely used gauges of Chinese equity prices. For much of the past three years, this index has slumped.
As you can see from today's chart, the slumping is getting worse. Just this week, the Shanghai Index plummeted to its lowest level since 2009. Corporate profits are slowing in China, and investors are fleeing. In order to get optimistic on China, we'll need to see this awful bear market stop.
– Brian Hunt
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