I was day-trading Google (GOOG) around 2007 when it went parabolic and then fell like a rock. A warning shot for what happened to the market in 2008. Been playing with Apple (AAPL) in a similar way, and just saw it go parabolic. Is history repeating? First the collapse of AAPL and then the whole market? Check this chart out from Doug Kass:
(click to enlarge)
I have seen a lot of commentary on this chart. “This time it is different!” GOOG was at a 50 PE while AAPL has drifted to a PE that is the same as the whole S&P (which makes sense given its market cap size – “regression to the mean” – It IS the mean now!). AAPL is still growing fast and has continued dominance of its sectors. Etc.
Stock predictions range from a low of $450 to a high of $750, with whisper at $1000, which would value AAPL at close to $1T.
Now, I am an Apple fanboy, and use my iPad and iPhone 4S constantly, eschewing my Android phone (Google Nexus – you get it, prior Google fanboy until the stock popped), hardily touching my Windows netbook, and sitting in front of an iMac dreaming of a Macbook Air with a touch screen. But I am buying a stock, not a company.
That stock has produced. Looking back, it got to as low as $3.18 in 1997-8, while generally hovering below $5. Bill Gates bailed out Apple for $150M back then. if Microsoft had held that stake, it would be worth over 100x – over $15B. Microsoft also bought into Facebook in 2008, and that stake will be worth a lot too, but the AAPL return is truly outstanding.
Parabolic runs always end badly, typically with a fall off a cliff shape. When GOOG fell, it had the expected bounce (wave 2) and then fell hard – look at the chart. But parabolic runs have no clear rules. AAPL may keep running. There are a bunch of stock market aphorisms around this, including don’t get in front of a moving freight train.
One way to figure this out is to use technical analysis. Here is a wave chart on AAPL, which says the recent tick at $600 could very well be the end:
(click to enlarge)