Apple Can Profit by Being the Underdog
NEW YORK (TheStreet) -- Apple(AAPL) , once the outperformer in almost everyone's portfolio, is now the dog that everyone claims they saw coming.
When the stock approached its all-time high of $705.07 in September, there was hardly a credible analyst who didn't think Apple would be the first trillion-dollar company. But then came along a couple of product blunders, bad press on China workers and a few missed earnings reports, and the stock took a tumble, a hard tumble, shedding nearly 40%. Still, the company produced record profits.
Apple had formed, in chart-analysis terms, a head-and-shoulder pattern last year, with the neckline at $530. Once that neckline was compromised, hedge funds and institutional investors started the process of dissolution, causing price to grind lower. Apple stock was deemed toxic waste.
The slide continued for nearly six months, while the Apple faithful, and the loonies who are perpetually fully invested in Apple, were getting their hearts ripped out and their life savings depleted.
According to technical-analysis folklore, the head-and-shoulder pattern afflicting Apple had the potential to push down the stock 175 points. That would put the target for the pattern at 355. Whoa! And there were many Elliotticians that had a wave target of 390.
Well, it appears things are changing, as they always do. A capitulatory event has shaken Apple free.
Over the weekend, a horrific report came out of the eurozone about a bank-bailout plan employing Draconian tactics that boiled down to the European government's seizure of account-holder funds to pay for the bailout -- a frightful precedent that gave everyone the shivers.
As a result, the markets gapped down hard in overnight trading. When the European market opened, there was both confusion and disbelief of what had happened. The powers that be decided to defer a final decision on the controversial bailout plan, and so the markets rallied, right into the U.S. market open, recapturing much of what was lost.