Apple is taking a pounding. The bubble has burst.
What now?
Believers will be hoping that Apple suffers no more than the classic 50% retracement from the high, which would see the stock back at $390.
This level is not $350 because the Apple bubble kicked off at $75 a share in 2008. It could stabilise here but I feel in the long term that is far too optimistic. The takeaway should be that charts that turn into massive hockey sticks are bubbles and bubbles always correct.
There is big money to be had riding a bubble and it’s a skilful and tricky ride, but the correction is always going to come. Apple is no different. I have written several articles calling this downfall from afar, including Five Signs that Apple is a Bubble (04/23/2012), Four More Reasons why Apple is a Bubble (05/14/2012), Five Reasons to Sell Apple Now (11/05/2012) and Is Apple's Future Blackberry, Microsoft or Amazon? (2/20/2013).
However, what's next?
Right now it looks truly horrible from a technical standpoint and not much better from a news standpoint.
Component suppliers to Apple are reporting weakening orders. Reports on Wednesday from
Breaking $400 is not the story, breaking the higher support or what I treat as the “price equilibrium level” is the important point. Put together, breaking $400 is a serious indicator.
Apple reports next week and there shouldn’t really be many surprises, but you never know. It isn’t the short term that is the issue, it’s the long term. This can be boiled down to Apple without Steve Jobs. Apple without Steve Jobs is “The road to normality.” Normality is $200-$300 a share.
Below are the support levels where Apple will have a chance to reach long term stability.
The big unknown is contained in the structure of the U.S. market. U.S. stock market psychology is bipolar. Prices have a volatility that makes the London stock market seem positively gentle. You can go from superstar stock to bum and back again with stunning speed. It’s a market where Goldman Sachs (GS) (which I own) can be the Vampire Squid controlling the world by its awesome evil genius one minute and a company with a 10 P/E at the same time.
As such there is a nightmare scenario for Apple and it is this:
Is this going to happen?
Not this fast and probably not this low. However it is not impossible if next week’s figures are bad. This is where the unpredictable U.S. market psychology makes it hard to call.
Personally I see Apple thrashing around for two to three years grinding on down. However, the chart says Apple can collapse to $200 and you should be armed with this chart whether you are long or short.
Not only is Apple’s quarterly report due next week but the crunch 1st of May week is near. Gold’s slump on Monday 15 April has made an ominous thunder crash as we approach the “Sell in May” crash window. Central banks lost $500 billion in a single day on their gold reserves.
This is all very worrisome.
Clem Chambers is CEO of leading private investors Web site ADVFN.com and author of the Amazon Investing No.1 Bestseller 101 Way to Pick Stock Market Winners.
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