The charts usually tell the story much better than words or opinions based on emotions. And what does the Apple chart tell us? It is heading down…seriously.

Apple is the benchmark for some of the popular stock indices. Because it is the highest capitalization stock in the indices, it carries the greatest weight. Therefore, when the stock can no longer be supported because of big selling pressure, it is bearish for the stock market.

The chart below shows a long sideways pattern since February 2015. That support has now been broken. The clue was the big gap down on July 22, 2015 on heavy volume. That showed an urgency to get out. There are a number of large hedge funds that had big positions in Apple, one or several of which probably sold shares lately. On any rally now, the many investors who still hold Apple stock will want to sell to preserve some profits or minimize losses. Therefore, they will sell. That creates a brick wall of resistance at higher levels.

AAPL chart - 8315

The chart of a stock is usually far ahead of the news stories. It shows what the well-connected investment outfits are doing. We believe they have discovered that there is an important trend change for the company’s success.

The iPod, at one time a terrific gadget, is so vastly overpriced now that no one even talks about it. Ipads are also uncompetitive in price, and sales are down over 34%. Top management has the attitude that Apple does not have to cut prices.

There is no innovation in spite of a multitude of requests for additional features. However, Apple is tone deaf.

The iPhone is the one item that still has the big sales. Does one product, a phone, justify making Apple the most highly valued company in the world?

Apple-philes say they love the iPhone. However, buying a phone is different from buying the stock. Investors should always differentiate between the product and the numbers. Moreover, the latter will start getting worse as the spike produced by the catchup of the large screen iPhone wears off and the competition encroaches on what was a virtual monopoly in that market.

The iPhone has a fantastic profit margin. High profit margins always attract a lot of competition until the profits shrink. Shrinking profit margins make for shrinking stock prices. And that’s what should be important for investors.

The biggest factor in the stock performance of Apple since mid-2013 has been stock buybacks. The company has used $130 billion to buy back it’s own stock and give shareholders dividends.

It wasn’t all earnings that were used. About $55 billion in debt was taken on to do these buybacks. But has that created any shareholder value? Instead of financial engineering to boost the stock, that $130 billion could have been used better to produce long-term value via acquisitions of some creative companies.

Apple made one highly publicized acquisition, Beats, a maker of headphones, for about $2 billion. Many analysts, including yours truly, were mystified by the purchase and the high price.

Creativity is what Apple lacks since Steve Jobs left. Here are problems I see:

  1. The only accomplishment over the past years was a phone with a larger screen, something the competition had 3 years earlier. The camera is still inferior.
  2. The Apple Watch is a flop.
  3. Ipad sales are down 34%. Market share is about 25% of global tablet sales vs. 65% in 2011.
  4. The new, streaming music with the antiquated Itunes will not make any significant money.
  5. Apple Pay is not expected to contribute to profits for a long time. The competition for digital payment is alive and well.
  6. So now the firm wants to bring out the story of “Apple TV” again. When the actual TV console didn’t materialize, Apple produced a small square which works like Roku and called it “Apple TV.” But now supposedly there is a real TV in the planning. Don’t hold your breath.
  7. And don’t forget, the “Apple Car.” My prediction: it will never see the light of day.
  8. The huge, oversized “flying saucer-shaped” new headquarters building is the final signal of an Apple top. It’s the typical ‘edifice-complex’ when a company has too much cash and too little ingenuity. I predict that eventually, much of the space will be leased out to other firms.

I am not talking about the end of Apple. Apple will probably experience a “Sonyfication.” If you are old enough you will remember when Sony was the unquestioned leader in home electronics. This enabled it to charge much higher prices and offer fewer features. They got away with it for some years. The end of the beta-VCR was the first sign that consumers were going elsewhere. Is the iPad sales plunge the equivalent? Now Sony is just another product name. It’s stock price is $27 vs. $157 in the year 2000.

Therefore, don’t shoot the messenger. Think about the above and evaluate without getting emotional.

Wishing you successful investing,

Bert Dohmen, Founder
Dohmen Capital Research, Inc.