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Is Apple Foreshadowing a Broader Market Top?


Apple sold off so much because of investor psychology.

Apple (NASDAQ:AAPL) broke down from its long-term uptrend in November 2012. With its price at $400, my firm wasn't surprised, but most analysts still are. Apple is now very close to our target price and may be foreshadowing a decline in the broader markets.

It seems like everyone is focused on Apple's earnings right now, just as they were in September 2012 near its price peak. Remember in 2012 when Apple's price was approaching $700 and analysts were calling for $1100, $1500, and even $1,650?

We do. (See the timeline below).

Currently Apple's price is around $400 and well below the "expert" analysts' consensus price targets (which, after six months, was finally lowered to below $600, but still is almost 50% away from Apple's current price). My guess is that it is only a matter of time before those experts chase price lower again, ratcheting down those targets in line with price reality.

Much More Effective

Even after its extreme decline, Apple still represents a large amount of the Technology SPDR ETF (NYSEARCA:XLK) and the Nasdaq 100 (NASDAQ:QQQ). No doubt it remains very important to the markets and many ETFs.

Apple is a wonderful example of how price is the only true leading indicator and can be used to help you get out of the way before disaster strikes. Following price in Apple warned us of a trend change to down in October.

In a research piece titled "Is Apple's Stock in a Bubble?" written on October 5, 2012, I warned, "Apple is in a decade long uptrend, but if price were to fall below $600, that would be a sign that the four-year uptrend in Apple has changed to negative."

This breakdown occurred the next month in early November, and there has been no turning back as investors continue to head for the exits and Apple fell another 30%+ from that $600 price. When everyone else was focused on lagging earnings, we were focused on what investors really care about: price.

Using similar techniques should also help us get out of the way of another, potentially larger, pending disaster (discussed below). In the meantime, Wall Street continues to "Buy" and "Hold" Apple shares as the next section outlines.

Traditional Wall Street "Wisdom"

The next chart pretty much sums up the major problem of trusting Wall Street for "wisdom." It would have lost you 40%+ of your money as almost all analysts were completely unprepared for what would happen next (and frankly they still have no idea why Apple's price fell so hard).

In April 2012, when Apple's price was $600, 87% of Wall Street Analysts had a buy recommendation for its shares. Many were expecting $1,000 as a given, and many hedge funds -- even ones that were focused on energy (anyone see an issue here?) -- held shares in Apple, providing their "expert" opinions on why it will hit $1,000.

In September 2012, those same analysts continued to buy Apple and continued to raise price targets as outlined by the timeline above.

Since then, Apple's shares have fallen over 40%, but Wall Street hasn't admitted that there is a problem.

80% of analysts never even came off their "buy" rating on the stock, continuing to suggest buying, and losing, all the way down.

We knew better.
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