AAPL

[Mike]

AAPL seems to be forming a head and shoulders pattern. I computed in 2009 (first stage base) a 98% P/E expansion price target of $718. This technique takes the breakout P/E (20) multiplies by 1.98 and then multiplies that result by the 2 year future EPS estimate (2011, at the time it was $18.13) to get $718. I find that chasing earnings estimate revisions does not work in a secular bear market so I keep this figure as the future topping price estimate. This process works out so often that it is scary.

98% P/E expansion is used for large cap growth stocks, 130% is used for smaller cap stocks.

AAPL got to within 1.8% of this target this year and probably topped. A simple H&S downside price target is now $316 presumably to happen next year if AAPL breaks the neckline to the downside.

Action of leading stocks have implications for the general market. I suspect that this means the NASDAQ high for the year has been set and that we are forming the right shoulder on the NASDAQ. The same H&S calculation suggests a downside NASDAQ target of 2367 which is close to a 50% retrace of the 2009-2012 bull market.

I am currently long BCEI, CVLT and KORS. KORS is not acting well and may not survive the day.

[ericoleman]

Thanks Mike. Your comments are always very insightful and appreciated.

Eric

[slgerritz]

You included the phrase secular bear market in your comments. Just for clarity, were you referring to the 2008 - 09 bear market or do you think we are heading into another secular bear market?

Stephen

AAPL seems to be forming a head and shoulders pattern. I computed in 2009 (first stage base) a 98% P/E expansion price target of $718. This technique takes the breakout P/E (20) multiplies by 1.98 and then multiplies that result by the 2 year future EPS estimate (2011, at the time it was $18.13) to get $718. I find that chasing earnings estimate revisions does not work in a secular bear market so I keep this figure as the future topping price estimate. This process works out so often that it is scary.

98% P/E expansion is used for large cap growth stocks, 130% is used for smaller cap stocks.

AAPL got to within 1.8% of this target this year and probably topped. A simple H&S downside price target is now $316 presumably to happen next year if AAPL breaks the neckline to the downside.

Action of leading stocks have implications for the general market. I suspect that this means the NASDAQ high for the year has been set and that we are forming the right shoulder on the NASDAQ. The same H&S calculation suggests a downside NASDAQ target of 2367 which is close to a 50% retrace of the 2009-2012 bull market.

I am currently long BCEI, CVLT and KORS. KORS is not acting well and may not survive the day.

[Mike]

You included the phrase secular bear market in your comments. Just for clarity, were you referring to the 2008 - 09 bear market or do you think we are heading into another secular bear market?

Stephen

Stephen,

A secular bull or bear market contains multiple cyclical bull or bear markets. The current secular bear market began in 2000 and so far has had two bear markets and two bull markets without making any net progress but because of inflation we have lost purchasing power even if we get out flat. We may or may not have started a 3rd cyclical bear market in September. This can only be determined in the rear view mirror.

The last time we had a situation like this was 1966 through 1982 with I think maybe six cyclical bear-bull cycles without making any net progress. I attach a long term view of the market showing secular cycles. The scale of the chart makes it difficult to see the cyclical cycles but remember that the 1974 bear market was deep and scary.

Dow History.pdf