Apple Drops a Turd in the Punch Bowl

(The guru who takes a victory lap invites the market gods to smite him with a bolt of lightning. Even so, because things have worked out very precisely for a recent forecast drum-rolled here, I am airing yesterday’s commentary for a second day.  In after-hours trading Thursday evening, Apple shares had dipped down to a so-far low of 447.36 — exactly 19 cents from the 447.55 target disseminated to subscribers a week ago when AAPL was trading above $500 and rising.

Battered and bloodied bulls should cross their fingers, however, since any further, decisive slippage beneath the targeted low would imply that Apple could grope its way down to 438.66 in search of better traction. Originally, Rick’s Picks had told subscribers to back up the truck and buy shares aggressively if AAPL did indeed fall to $447.55. However, because this “Hidden Pivot” target has in fact been hit outside of regular hours, we are now suggesting that any buying be done either with a very tight stop-loss (i.e. 36 cents or less) or via a “camouflage” entry technique well known to those who have taken the trading course we offer from time to time. Click here for detailed information about the upcoming March webinar. RA]

We had been looking for Apple to fall to at least $461, or to $447 if any lower — a correction of about 37% from September’s all-time high of $705. Last week, however, with the stock in the throes of a deftly engineered rebound after having gone no lower than $483, we moved to the sidelines. As we explained in a headline at the time, We’ll Sit Out the Short Squeeze. And so we did, as Apple climbed to a recovery peak of $528 in off-hours trading yesterday afternoon.  That peak proved fleeting, however, to put it mildly, since one could have bought the stock 90 minutes later for as little as $457.

What could account for such violent price fluctuations?  For starters, there was the usual confluence of village idiots (aka “Wall Street”), headless chickens and panicky shorts waiting for the big announcement from Cupertino. All it took to send these nervous Nellies colliding like particles in an atom smasher was some disappointing earnings news.  This, Apple duly supplied after the close with a report that profits for the most recent quarter had remained flat for the first time in years.

So why did AAPL shares initially feint higher on such rotten news, as the chart above shows? The evidence suggests that more than a few of the nervous Nellies were drawn offsides when the ball was snapped. Remember, these are guys who, in order to to gain an infinitesimal edge over the competition, have come to depend on “thinking” machines that react at the speed of light. Under the circumstances, it’s not surprising that some of those machines would have jumped the gun with a poorly educated guess the moment the letters “Ap…” appeared on the tape.

S&Ps Topping?

So now what? Although the stock signaled even lower prices (i.e., $447, the “Hidden Pivot” support mentioned above) when it exceeded our target at $461, we don’t pretend to know how this will affect the stock market in the days ahead. Even so, it’s worth noting that the S&P futures had been struggling for two days to push above a longstanding rally target of ours at 1494.50.  The best they could muster, on Tuesday in after-hours trading, was 1491.50.

Will that turn out to have been a major top?  Quite possibly.  If not, though, there is another rally target above it with the potential to stop a nearly four-year buying spree that has routinely feasted on bear stew.  And above it there is yet one more Hidden Pivot target – for the Dow Industrials – that we’ll hold in reserve against a possible Mother of All Bear Traps. Want to see how high this die-hard permabear thinks the Indoos can go even as Europe and the U.S. sink into recession or worse?  Click here for a free trial subscription to Rick’s Picks that will give you access to the answer.  Then come over to the chat room, where you can ask subscribers how accurate our previous forecasts have been.  This is in lieu of P&L claims, which we shun and you should distrust.

  • gary leibowitz January 28, 2013, 5:15 am

    I find it funny that I predicted a new all time high before we crash, some 14 or so months ago, yet people look at me as if I am still crazy. Guess what folks, it already did break new highs on some of the indices. Now here is the really funny part; at this stage a crash in the next few months will only validate my long term expectation.

    Has anyone here done better? If you remember I kept saying that we will experience an economic recovery before we see the next crash and while it isn’t exactly in full throttle, it is steadily improving. I also stated rates will rise and the ending move will be a steep up move.

    So I hope I continue to keep you laughing till May. BTW, I need to see a sharp but healthy drop very soon or we will not reach my May/June top.

  • Marc Authier January 28, 2013, 2:22 am

    Once you remove all the fluff and all the religious sect fatatism about Steve Jobs, may he burn in Hell !, Apple has another 90% to fall befoer being a real bargain.

  • mava January 27, 2013, 11:04 pm

    All the disagreement of matters political and theoretically economic aside, why am I keep coming back and back again at this place?

    It is because of something that RA clearly understands. I am amazed again and again at the accuracy of a technical forecast by RA. I don’t know what to think. I can not believe that there is any reason for a technical analysis to be ever correct. And yet, the reality smiles me right in the face with yet another RA’s HP being right on the money.

    I must conclude that RA has an uncle or somebody at the exchange and he is being told what is the fix. What else could explain this ridiculous accuracy? He adds an insult to injury by going down to specifying mere cents. Seriously? This is when most anybody could not reliably predict even the direction?

    In the past, I have noted that although everyone has his failings, RA clearly stands out for first being the man and eating his hat when he had to. Then he did another outrageous thing and acknowledged he was wrong on Inflation-Deflation debate, as not many will have cahones to do. And now, he keeps insulting me by constantly being right on his technical forecast, while I think it should not be possible. Surely, either he has an Uncle or I am very wrong.

    You’re the man, RA!

  • bigtom January 26, 2013, 9:52 pm

    Cam – interesting, could very well be. somewhere in my internet roamings have read recently money in the last 10 days appears to be coming out of the bond market and am assuming going into stocks. coulda been here i read this, don’t recall. That is a reversal of months of trend…. investing today it seems is definitly a ‘cloak and dagger’ operation and appears little to do with value! way over the head of my market capabilities! RA, good story today with lots of implications……

    • Cam Fitzgerald January 26, 2013, 11:38 pm

      My gut tells me that is almost exactly what is coming, Tom. Apple is heading higher after a brief pause and it will carry the markets back up. Not even sure if that is a contrary bet. I sure as heck would not be shorting here though. That is a fools game. Apple is still a great company and with what we are seeing in the other markets I can only conclude it will bounce hard off these lows.

      When I would get most worried is if it actually approaches the 705 mark again. Perhaps that is when we finally see the setup for the long awaited correction appear. A kind of signal.

  • Cam Fitzgerald January 26, 2013, 9:59 am

    “Apple’s after-hours dive has overshot our 461.64 target by more than $4 — presumably enough to imply that an alternative target at 447.55 is likely to be achieved. That’s a back-up-the-truck spot for buyers as far as I’m concerned, but there’s always the risk that AAPL will turn rabidly higher from somewhere above it.”

    I am thinking you are right suggesting AAPL could suddenly go rabidly higher, Rick. Now as it sits at 439.00 we may be very close to getting a setup that will give a big boost to the darling of the tech world. A bolt out of the blue to silence all the doubters and squash the shorts is on its way. Nasdaq 3000 anyone?

  • Dave January 26, 2013, 1:28 am

    Harry Dent was on CNBC today, says up to 1600 S&P then crash to 6000 Dow later this year . He has been right before but timing off and had to update his previous Housing Boom title which had year range specified. His current book The Great Crash Ahead left off year range.


    Harry Dent? CNBC?? I must be in an awfully tolerant mood today.

    • Dave January 26, 2013, 6:14 am

      Possibly much less agita for you than earlier this month’s Gerald Celente on 2013, Gold and Silver and WW III 😉

  • Marc Authier January 26, 2013, 12:28 am

    Down with the Steve Jobs religion. Nice company with all thes slaves suicide in their chinese factories. Rotten Apple.

  • gary leibowitz January 25, 2013, 8:28 pm

    I guess Eve must have eated this AAPL. If you look at the 2 year or 5 year chart it hasn’t broken down yet, as strange as that sounds. I have also noticed this last day or so we have formed a nice wedge where the market should either break out further or start the correction that is much overdo.

  • Dave January 25, 2013, 6:04 pm

    Any guess when those Apple stores will become the next Best Buy… large, quiet, dated?. It was fun playing with new technology in them a few years ago but seems they could go the way of Sharper Image stores that at least had vibrating massage chairs to experience.

    • gary leibowitz January 25, 2013, 6:22 pm

      You will probably see one more move to reclaim the highs before everything falls hard. At a P/E of 10 I wouldn’t be betting just yet on a continued slide.

    • Cam Fitzgerald January 25, 2013, 7:59 pm

      This might be a crazy comment but do any of you recall when Apple closed at 666 back on October 5th. It was just coming off the all time highs then and it has been going down ever since.


    • Pat January 25, 2013, 9:35 pm

      Gary, the market is going to probably go much higher than even you imagine, especially now that the housing sector is now recovering nicely.

      One of the biggest mistake individual investors have made over the last 4 years is listening, and unfortunately, believing all the BS from the permabears about the imminent collapse of the stock market and the economy. needless to say, they were off by a mile, and it has cost ordinary investors trillions in wealth had they stayed invested. And that includes me, but for at least the last year or so I’ve learned to NOT fight the global central bankers, they always win. And with Bernanke adding another $1T this year, there is no reason to believe the markets have any other way to go but up. With new all-time highs just a chip shot away, its almost automatic that we’ll soon eclipse them. Stay invested and don’t get scared out !


      Oh great, just what we needed around here: a Gary Leibowitz Doppelganger to help us invest wisely. We are so unworthy. RA

    • gary leibowitz January 25, 2013, 11:32 pm

      Pat, to suggest this market can go much higher from here is a stretch of the imagination. You do know I expect the SPX to hit a top around 1650, but I am not sure you would consider that much higher.

      In the end improving economic conditions will actually cause the crash. The world needs rates to stay relatively low for a long extended period. The other component is balancing a budget. This will come to a head before mid-May. The world policy-makers are not omnipotent. They can plug the bottle with a cork, but eventually built up pressure will pop it. We straddle a fine line. How high can rates go before it hits the market hard? Will the budget debate resolve favorably for Wall Street?

      4 years after the biggest debacle in american history should not be thought of as being cured, just becuase it rebounded back.

      I find it strange that I am taking up the bear cause.

    • Cam Fitzgerald January 26, 2013, 9:50 am

      What is even stranger than fiction, Gary, is that I am starting to wonder if the bulls are not the ones who have it right.

      Is it really such a preposterous idea that the Dow blows past the 2007 highs of 14k before we see that long awaited correction?

      I am being serious. Looking at how many are talking seriously about inflation ramping up amidst slowly rising rates and others indicating the US economy is actually showing signs of improvement leaves you wondering what is in store next.

      The determination of the Fed has already been seen where floating markets higher on a sea of printing is having its way. On that note I find it curious that the Fed is even suggesting they could withdraw the stimulants. Are they signalling that enough has been doen and that expansion lies ahead thus bouying markets on the back of inflationary pressures?

      Why would this market come crashing down just shy of long term resistance on the Dow? One thing I know is that we won’t have long to wait to find out. Whatever the outcome it will be interesting but making a wrong bet here could be very costly.

  • Sreenath January 25, 2013, 10:24 am

    Headline is hilarious and appropriate….couldn’t stop laughing for minutes and still chuckle when I think of it….Great humor Rick

  • gary leibowitz January 24, 2013, 11:09 pm

    I like to look at the market from the bottom up. Earnings ultimately drive the market, and failed future earnings expectations can cause a crash, even with current earnings hitting high marks. So far the earnings and expected future earnings have not deterred this up move. I suspect the recent move has more to do with the deferred balanced budget. In case you missed it wall street loves a bloated government hell bent on spending excessively. I suppose you can blame them for such short-sightedness, but you have to admit earnings have done very well for a very long time. In fact the earning power has been unprecedented in percentage terms and longevity. So I guess they just outsmarted the average investor.

    I must reiterate my stance, since it keeps getting thrown in the mud. I look at all historic events and government response to such crisis and conclude they will always “try” to prevent or temper the fallout. People call me naive since they think I can’t see what this government response is doing. I find that alarming since everyone has very transparent readings on their actions. The QE 1 thru infinity’s actions are not hidden in some obscure manual. The ever increased debt is also very exposed. What most on this board are angered about is the fact that human nature seems to discount such alarming trends and pretends it will only explode sometime in the distant future. That my friend is human nature, and that is one reason we have such excesses and crashes afterwards.

    So let me state the following: This government is taking unprecedented action: Forcing stable government bond purchase and rates by buying back its own obligations (absurd on the surface but working temporarily). Bailing out financial institutions with a guarantee supply of interest bearing money. Playing the future markets to try and stem any disruption to wall street investors.

    Now the obvious. It will most likely not turn out well. My theory, based on fibonacci numbers, gave a time-line for this market to hit it’s top. I stated 14 months ago that I suspected that date will fall around May/June of 2013. I also concluded that such topping pattern is usually preceded by a steep spike up. I have not just relied on this theory. In fact the recent gains I received from November to today cuationed my on taking those profits off the table in anticipation of a 1,000 DOW point correction. Looks like I was a bit early. In fact if this market doesn’t fall soon I will conclude this is the last rally.

    Regarding AAPL. I find it astonishing that it has fallen so badly without the rest of the market falling with it. I don’t mean in step, but to be up when AAPL has fallen over 35 percent from it’s high is simply astonishing. That denotes strength. To conclude government intervention (manipulation) to prevent the market from falling, suggests that they want the pressure to be so great that the next drop will be a huge crash. We all must know that no matter how much manipulation this government applies, they can not prevent the ultimate outcome. No ponzi scheme has ever worked.

    A very long standing bear that decided to discard my emotional bias in favor of technicals and macro theories.
    Does anyone here remember my pure crash bets over 16 months ago? I was “always” anticipating the crash at every technical or fundamental opportunity until I decided to change my “failed” practice. I am a bear traders conundrum for sure. We are a complicated beast.

  • Erin January 24, 2013, 9:25 pm

    How can we possibly have a top in the stock market? Pauses maybe? We have money printers running full blast all around the world. We have a society that is addicted to stupidity.We will have an administration who will be celebrating and boasting how well the stock market is doing and claiming that things must be better off because of it and their policies ARE working. This is the making of a top? Seems more like the beginning of a new society where productivity means nothing and big government sucks the spirit and life out of everything.

    • Rick Ackerman January 25, 2013, 12:31 am

      I don’t claim to know what will cause stocks to top, Erin, I simply focus on impulse legs and Hidden Pivot targets that make important highs and lows more or less predictable. In that regard, there is no getting around the fact that there are not many of the latter remaining on the long-term charts.

      From a trading standpoint, we like to short every juicy rally target we can identify, since it’s usually possible to make a few bucks even when the target proves to have been less important than we’d hoped.

  • redwilldanaher January 24, 2013, 6:18 pm

    Can’t possibly be topping time yet Rick. Things are too good to be true:

    (Please don’t lecture me on the lack of correlation between the economy and the Stock Market. I understand that.)

  • Bill January 24, 2013, 2:56 pm

    On the chart you can actually see the turd bloop into the punchbowl…

    • bigtom January 24, 2013, 11:43 pm

      LOLOL good one – can’t help it! Looking at an aapl 6mos chart one can even see the ripple effect from the ‘turd bloop into the puchbowl!’ as you say. Down $63.51 as I am looking at it now! Sheesh, maybe more like a tsunami effect!! Thankyou HFT…. The $HUI seems to have the same plot line…..

  • Redwilldanaher January 24, 2013, 7:06 am

    Nice piece Rick. Great calls, great writing. That’s why I visit here nearly every day.