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Thursday, March 15, 2012

Short Apple!

Okay, I know I wrote about this before, but my previous post was more of a suggestion.  Apple is now hovering around $600 per share.  The chart is the textbook definition of a parabolic curve - it is going vertical.  There is no way to tell exactly where this stock will top out, and they do have over $100 billion in cash.  However, the stock has made a gigantic move over the past few months and is now worth more than 11% of the entire S&P 500.  It is responsible for 34% of the entire year-to-date gain for the NASDAQ 100 index. For this price and momentum to be sustained, one would have to believe that the company can continue to produce the same level of explosive growth and product development.

As I wrote previously, I do not believe the company can sustain its previous product development pace and quality without Steve Jobs.  The recent release of the iPad 3 only serves to reinforce this belief - rather than releasing a new, revolutionary product, all they have done is improve an existing product. Granted, the improvements contained in the iPad 3 appear to be very significant, especially with regard to the display graphics, but this is not going to be enough to get most people who currently already have an iPad to go buy a new one.  Yes the iPad 3 will sell well, but at the end of the day, for the vast majority of users, the iPad is nothing more than a gadget; a toy; a novelty.  The market will eventually become saturated, and demand will wane.

My previous article, which explored the future of Apple, post Steve Jobs, was more of a strategic, long-term opinion about the company's ability to continue to release completely new products that establish new categories, etc.  My call today is a short-term, tactical call, based on the pace of the stock price increase and the backdrop of the overall stock market rally we have experienced over the past few months.  I believe strongly that the market is due for a correction, and the higher we go in the short-run, the more severe will be that correction.  Should we get a 10% or greater pull-back in the overall market, I believe Apple will suffer at least twice the percentage drop.  

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