Monday, April 5, 2010

Apple Bubble

A pair of the latest magazine cover stories has caught the eye of Paul Montgomery, today's foremost practitioner of contrary opinion technique and the inventor of the magazine cover indicator. (You can read more about Paul on page 212 of my book.)

Above this post you can see images of the latest covers of Time magazine and Newsweek. They feature Steve Jobs and his latest product, the i-Pad. From his research on magazine covers Montgomery discovered that the appearance of a CEO or his company's product on the cover of a general interest newsweekly like Time or Newsweek is often associated with an important high or low in the company's stock. I discuss this magazine cover indicator on pages 92-95 of my book.

As you can see from its monthly bar chart Apple Computer (AAPL) has nearly tripled in price over the past year. It has been one of the leaders of the current bull market. But the two magazine covers above are warning us that public enthusiasm for Apple Computer has reached bubble levels. Montgomery has found that in this sort of circumstance the final high of the company's stock price follows the publication of the cover stories by about 4 months on average. On this basis we should expect AAPL to move higher for the next 3 or 4 months. But 12 months from now it is very likely that AAPL will be selling substantially lower that it is now.


  1. Awesome post, Carl. Thank you.

  2. I guess it is about time to sell AAPL and buy GOOG.

  3. Nick,

    I am watching for GOOG to break-out from resistance and buy accordingly.

    It is good to know the stat on the timing when a stock peaks after the cover/headline. Thanks a million for sharing.

  4. Makes me think that the next bull market may not be led by tech. Not sure but it might be a raw material or infrastructure theme after the US$ rally will have run its course. This fits well into my current timing-view of 3-4 more months of the current bull run, then a larger correction and then the next stage of the bull run with new leadership.

  5. Let's hold on here.

    Aapl could easily move to the $300s. Selling on an assumption will burn you. Just because you want to be a contraian (imho)is just stupid and get ready to get squeezed if you go short.

    Remember, The Trend is your friend and the trend for aapl is currently "long"

    Wait for a sell signal on the charts and get confirmation to make your move. No reason being first and taking all the arrows!

    Just my op.

  6. Excellent Post. I was wondering if Ipad sales would be bad for iphone sales..

  7. To mee the eerie thing for an investor seems to be that much of their share price hinges on Steve Job's health - more than any big company I know of. So when investing, why not buy life insurance as a hedge?

  8. Carl, most analysts give a projected 1st day sales at around 500-700 thousand units before the launch.

    As Apple announced they only able to do 300 thousand all including pre-order, retail and other form of purchase.

    The next iPhone 4.0 is going to be release by June, so I won't be surprise the stock will continue to move a bit higher, but after the iPhone 4.0 is done, i think its a good short.

    Excellent work, I have read your book!

  9.'s another magazine cover for you....

  10. More evidence:

    SAN FRANCISCO (MarketWatch) -- Apple Inc.'s shares got a lift Monday after Morgan Stanley laid out what it called a "bull case" for the popular maker of consumer electronics goods -- saying the stock could be worth $400 a share under that scenario.