Apple Inc. (NASDAQ:AAPL) — the most widely held stock in the world — is getting ready to close out its most disappointing year in almost two decades.
Do you think, like the majority of the crowd, that you should be looking at this as a value opportunity, or just the beginning of a lengthy decline in Apple stock?
Our analysis suggests that the latter is about to take place, signaling that the real opportunity is to sell the shares before things get worse.
Let’s start with why we’re considering AAPL’s performance to be among the worst in more than 18 years.
This year, Apple stock will return -2.2% (if we closed the books today) at the same time that the market is going to squeak out a slight gain. The last time AAPL shares posted a loss when the market gained was in 1997. This, of course, was during the era where Apple Inc. was struggling to find its niche in the device world, pre-iPod, pre-iPhone and pre-other monumental gadgets that have moved the needle (and Apple stock’s value).
Leadership and Product Lines
Another notable to the last era of negative Apple stock returns in positive markets was that it was marked, and stopped, with the return of Steve Jobs in late 1996.
This suggests something we’ve always known: Steve Jobs was always the driving innovator, and probably the company’s most valuable asset.
Currently, Apple Inc. is moving into the new year with a lot of questions surrounding its product lines and pipeline. It is interesting to look at the timeline of AAPL products to note that the last time the company was trying to manage a large number (13) of product lines was also during the 1995-97, period when the stock was a perennial struggler.
Currently, the company is managing 14 product line, most of which are iterations of existing products.
Innovation vs. Iteration
It is important to point out the current trend of product iteration versus innovation. Apple Inc. underwent a period in which it was considered the only true innovator in the technology markets. Today, we continue to see iterations of existing products with diminishing value added on each version.
Another technology company, GoPro Inc (NASDAQ:GPRO), has been suffering from the same iteration vs. innovation cycle, leading to its poor performance in 2015.
Bottom line is that Apple stock is likely to languish until we see some true innovation that will support fundamental increases in valuation.
Apple Stock Charts
Apple’s charts are flashing all kinds of signs that should have the technicians reducing or completely closing their positions.
For the second time in six months, AAPL’s 50-day moving average is transitioning into a declining pattern, a bearish implication. The last time that the stock saw this inversion was in July, just ahead of the decline from $127 to $110 and lower. The coming inversion will generate an intermediate-term price target of $90, a near 20% decline from current prices.
In addition to the intermediate-term charts, the longer-term technical picture for Apple stock is concerning for any bullish investor.
The recent move below $110 puts the stock at risk of closing below its 20-month moving average. This would put Apple stock in a technical bear market trend, especially if we were to see an additional close below this trendline in January.
Finally, for the real chart watchers, Apple stock is in the process of drawing a “head-and-shoulders” pattern with its “neckline” at the $110 level. This means that any push below this price point will spawn additional technical selling.
In summary, the near- and long-term charts for AAPL shares are far from anything considered bullish and are serving as warning signs that those holding Apple stock might be in for a wild ride.
And Then There’s the Sentiment …
As we mentioned, Apple stock is the world’s most widely held stock. According to our sentiment gauges, AAPL should be considered a danger because it’s crowded with bulls.
Current analyst recommendations show that 82% of those covering the stock have it ranked a “buy.” The average buy recommendation for a Nasdaq-100 Index stock is around 55%, displaying the clear bullish bias toward Apple stock.
Unfortunately, crowded bullish trades normally become selling frenzies as soon as the bulls sniff out any trouble. According to our analysis, there are plenty of signs of that trouble on the horizon for Apple stock.
For now, we’ll maintain a price target of $90, which may be lowered on further technical breakdowns in the new year.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
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