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The Case Against Apple

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Utilizing both fundamental and technical analysis, I see potential for some bad apples.

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The longer-term and unisolated view of the stock going back to the fall of 1984 is far more impressive, and if you squint you can make out that 1990s segment we just examined.


Click to enlarge


In the above graph, you can clearly see why Apple is so thoroughly loved, despite those 1990s dark years. If you had invested even modest sums in this company in the mid-1980s, a feat within the reach of investors making far less money than the bank executives we're always reading about, you did very, very well. And there are a lot of people out there -- individuals and institutions -- who did exactly that. They're very pleased, and I'm pleased for them, as well as for the company's good fortune and all whom it has positively affected throughout the world.

As you can see, I've introduced some other quantities in this graph, the title of which makes reference to something technical analysts are often worried about. That worry is when volume doesn't "confirm" price action.

One way to consider this concept is to employ the quantity known as dollar volume. It's a simple monomial (math talk for something not very fancy, just multiplying one number by another -- no exponents, no logarithms). To compute dollar volume just multiply the share price for a given trading day by the number of shares traded. As you can see, Apple had toyed with the $200 mark at the end of 2007 and, from there, it slid substantially below the hundred-dollar mark during the March nadir last year, as most stocks also swooned. So, it's not surprising then that dollar volume slumped too. But as you can also see, while the stock has soared to all-time highs more recently, the dollar volume still appears to be sluggish because the volume hasn't been enough, even with that meteoric price action, to propel that quantity up to new highs. In order to know what this may portend, it seems to me that you'd have to take a look at what this type of action has corresponded with in price action of the past, so that's what I did.

Before we leave this graph, however, please take note that I've also provided the increasing divergence between Apple's price and dollar volume (light blue), and also graphed a moving average of that quantity to smooth out the picture (red).

21 Bad Apples

Here's another angle on the long-term history of the stock, which I call 21 bad apples. It's a snapshot in table form of Apple's 21 worst one-day price declines over that longer-term history going back to the fall of 1984. And I've bolded that stagnant 1990s action.



The average tumult for these bad apples was a 16.2% decline. And there was an average of 430 days between each instance. Having made that latter point, it had been 560 days (until April 12, 2010, the day I prepared this table) since the last such bad apple of September 29, 2008, a date on which the stock declined almost 18%, some 30% greater than the average periodicity between bad apples shown here overall. In baseball, that might get a statistically oriented fan thinking "he's due." Is that the case?
No positions in stocks mentioned.

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