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Before you buy one share of Apple, I have two words for you: plastic shoes.
Crocs — the company behind those ugly, squishy sandals — was having a banner year in 2007. The stock was booming. At one point, sales projections forecast that every man, woman and child in the country would soon own several pairs of Crocs sandals. The share price doubled. Then it doubled again.
Following a parabolic ascent that lasted nearly a year, Crocs shares tumbled. After all, it turns out there actually is a limit to how many plastic sandals a company can sell. From a high of $75, the stock plummeted to less than $1.25 in about 11 months.
Today, if you swap out neon shoes for iPhones, you can see the writing on the wall. Apple’s spectacular run is all but over.
Unfortunately, most investors won’t know what’s coming until it’s too late. Just this week, an analyst from Topeka Capital Markets slapped a $1,000 price target on Apple stock. That would value the company at just a little more than $1 trillion.
In reality, Apple will never hit the $1 trillion milestone. In fact, this scenario is downright impossible. If you own shares of Apple, you should sell them immediately. If you’re thinking of buying now, don’t.
Apple is headed for a painful and inevitable correction. And when Apple finally implodes, the destructive ripples will reach beyond dazed shareholders. In fact, an Apple crash could have a far-reaching effect on the tech sector, the Nasdaq, and even the market at-large.
Sleuth correspondent Chris Mayer detailed several fundamental concerns regarding Apple in his column less than one month ago. Chris questions the sustainability of iPhone subsidies, growing competition from Android products, and the loss of visionary leader Steve Jobs. In my opinion, these are all valid concerns.
But none of these fundamental arguments matter anymore. Forget everything you’ve read about Apple. Forget about its growth prospects, sales numbers, and international expansion. What you have to understand is that Apple Inc. has effectively severed itself from Apple stock. Nothing the company says or does will have any effect on how this scenario will end. Apple is now at the point of no return. The stock has entered the beginning stages of an epic meltdown.
Here’s how Apple’s final moments in the spotlight will play out:
The first step toward its downfall is an abrupt change in how the stock trades. This is already happening. Apple has gone from outperforming the market every year to outperforming stocks nearly every single day. The trend has accelerated. The stock has spent very little time consolidating its big move. Any way you look at it, Apple’s recent run-up is unsustainable. The chart has gone hyperbolic — a sure sign that a correction is imminent.
This brings us to step two in the process: Wall Street analysts swooping in with outrageous price predictions. Topeka Capital has already posted its $1,000 call. In the coming days and weeks, you should expect the bizarre game of “analyst leapfrog” to begin. The drones covering Apple stock will re-evaluate their numbers. Analysts will increase their estimates.
Investors will greet the higher price targets with enthusiasm. Just like neon plastic shoes, iPhones and iPads will be bought and re-bought by every person on the planet. The investing public will gush over its paper gains and repeat the famous bag-holder mantra:
This time, it’s different…
Only it’s not different. History will continue to repeat. That brings us to step three. I call it the “first crack.”
Consider the following: Right now, Apple is the most valuable public company in the world. It is the most widely owned stock among hedge funds. The stock has enjoyed a tremendous, decade-long bull run. Every armchair investor in the country has bought shares. In short, no one is left to buy into the story anymore.
That’s where the first crack comes into play. All it will take is one small warning. iPad sales might miss expectations. Or consumers might not like the new Apple TV that’s set to debut sometime this year. Just one sign of weakness will trigger the first selloff.
Hedge funds will sell first, creating a powerful initial drop. Average investors will shrug it off. Analysts will immediately defend the stock. They will insist that the drop has created a buying opportunity. But by that time, it will be too late.
Once the meltdown begins, there’s no way to stop it.
As the big money players unwind positions, the stock will develop the first signs of a massive downtrend. At that point, too many investors will be underwater. The floodgates will open. Apple will go from Wall Street’s darling to a complete outcast in a matter of weeks…
If you just take a step back from the noise, you can see why the $1 trillion milestone wont’ happen. Remember, this exact same scenario has played out time and again throughout every sector and asset class on the market. No matter how strong the underlying company might be, its stock cannot overcome a dangerous, parabolic chart like we’re seeing in Apple right now.
Investors have already banked the easy money. Don’t get burned fighting for the scraps.
– Greg GuenthnerSource: Penny Sleuth