When weakness occurs in equities, this is generally what you want to see for confirmation. Even at $600, Apple’s valuation is not outrageous. If you are using next year’s forward EPS estimates of $48. That gives you a P/E of around 13x. This is still very reasonable, but my fear is that being long Apple is becoming a very crowded trade. Every day I hear someone talking about it and when the whole world thinks they know something special, it generally does not bode well as time goes on. The volatility in Apple is become much greater as well. In 2011, Apple rarely made intraday swings of 10-15-20 points, but now it is becoming normal behavior. Apple is the greatest company on the planet and there is no argument about that, but stocks do not go up in a straight line forever and that is a fact. It feels like investors are looking at Apple as an asset class, instead of a company that is driven by products. I firmly believe that Apple must close above $545 if the market continues to uptrend in order to continue its rise. If not great risk/reward short sets up might start to appear.
Written by Cameron Patrick
@Cam_Patrick