Forget the coronavirus when it comes to today’s top investing concerns. The thing you should be worried about is the ‘FOMO’ virus running wild on Wall Street. And right now one name to avoid is Apple (NASDAQ:AAPL), because history and gravity are about to turn on Apple stock. Let me explain.
It’s been a great start to the year. For its part, the large-cap and broad-based S&P 500 is up nearly 4.50%. And that’s on top of 2019’s terrific gains which saw the market proxy soar 29% to record highs. Nothing, it seems, can shake investors’ belief there’s more to lose by not owning stocks versus waiting for better opportunities. And nowhere is today’s fear of missing out more obvious than in Apple, the market’s largest publicly-traded company.
On the heels of 2019’s almost mind-boggling 89% return in Apple which was top among S&P 500 stocks and hoisted shares firmly above the $1.0 trillion market capitalization threshold, AAPL has tacked on an additional 10% in 2020. That’s more than twice the market’s own strong performance this year.
The gains are even more impressive given the past couple weeks as Wall Street had to shake off a broad-based, coronavirus-driven panic attack. But does that really matter or justify Apple’s current valuation?
To be sure, many of today’s Apple bulls will quickly point to the tech giant being more than just an amazingly successful hardware device manufacturer. Shares now represent a new growth narrative in the software as a service or SaaS space. It’s why, we’re told, AAPL continues to be a buy.
Still, in the face of a historically rich-looking price multiple being spun into the age-old, ‘this time its different’ narrative and a story propped up by stock buybacks amid declining net income, I’d advise not buying what Wall Street is selling. In fact, with an Apple stock price chart also increasingly prone to technical gravity, it may be a better time to consider a short position.
Apple Stock Monthly Chart
Quite often price trends persist longer than many of us believe is possible or at least deeper than our pockets can continue to bet against. Right now, the Apple price chart is trying to prove that point to investors thinking shares have run too far, too fast.
The provided monthly view illustrates this well enough. But don’t let today’s fear of missing out mentality fool you into rationalizing Apple’s price momentum is actually something more meaningful.
As the long-term chart of Apple shows, shares are currently stretched outside the upper Bollinger Band after clearing a 10-year old angular price line. It’s the first such instance of this type aggressive behavior since the financial crisis ended.
And mind you, shares now sport a whopping $1.4 trillion market capitalization. That of course was almost unthinkable back in 2009. But that’s not all that has us concerned.
There’s also Apple’s overbought stochastics. The secondary indicator is warning shares are riskier today than otherwise. Lastly, with the price action also testing the upper layers of a key Fibonacci-based resistance zone, shares are obviously extended and well out of position for buying with any sort of confidence. And as noted prior, the net result looks increasingly ripe for shorting Apple stock.
The Bottom Line on Apple Stock
As to how to best approach a short in Apple, my recommendation is to wait for the monthly stochastics to signal a bearish crossover. I’d caveat the entry by advising investors only go short if the monthly chart’s January hangman topping candle isn’t breached by more than 1.25%.
The modest percentage leeway represents a price of $331 in shares of Apple. This allows for a bit of mischievous wiggle room around the candlestick if necessary. Still and importantly, exiting the position above this threshold needs to be respected in the rare event this time is truly different for today’s gung-ho and convinced bulls.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits
