On 14th March I wrote that Apple’s (AAPL) stock seemed to be moving too fast. Well, four weeks later I think that the stock might now be running out of steam. The stock left its normal growth channel in early February and has moved hyperbolically towards a climactic top (a sharp increase in prices on heavier than normal volume). It has made three distinct pushes since then, indicated by green ovals in the chart below, each one shorter and weaker than the last – like a stone skipping on a pond and about to sink! I suspect it might make one more skip, perhaps up to US$650, and then sink back to its normal growth channel at around US$500.
A drop from US$650 to US$500 will erase only two months of gains, but the psychological impact of Apple shares falling by 20% or 25% will be significant for retail investors’ confidence and could signal another cruel summer, like 2011.
I am moving my stop loss up to US$600 to protect against a quick move downward. I like the underlying company and hope to buy in again at a lower price after the climax is over.
Writing today, 11th May, this prediction was a good one. Apple had actually peaked at the time of writing ($644 intraday), and fell to a low of $560 by 24th April (a 13% tumble). I was stopped out at $600 on 16th April.