No one can deny that Apple Inc. (NASDAQ/AAPL) has had an extraordinary run. Both the company itself and the stock have been the clear leaders among technology stocks. This has led to the current market sentiment, which is overtly bullish. This can be dangerous for investors, when market sentiment is leaning so much in one direction—either bullish or bearish. This could be a problem if, at some point, everyone who wants to own the stock already does; then there’s no one left to buy it. While many technology stocks are starting to underperform, Apple has continued its strength.
The question: is market sentiment shifting? The stock’s move up from the summer until the peak in September was on expectations for the new “iPhone 5.” Many investors try to jump ahead of product announcements from technology stocks, hoping to profit from the upcoming publicity. This does appear to be a good trading strategy, as many times technology stocks subsequently pull back once the announcement takes place. This is an old phenomenon called “buying on the rumor, selling on the fact.”
One must be aware that, for Apple, a huge part of its corporate earnings come from the iPhone. While it does have a suite of products it sells, a disproportionately large amount of profit stems from one product. Technology stocks are certainly not sitting back and allowing Apple to dominate; they’re fighting to regain market share. Obviously, Apple has a significant lead, but it appears the competition has stepped up their game.
While other technology stocks have had to play catch-up with Apple’s innovative products, this iPhone represents the reverse. Other technology stocks were already offering phones that had a larger screen, better cameras, and the capabilities to use the new LTE high-speed network ahead of Apple. While market sentiment is clearly in Apple’s favor, this lead is not as dominant.
I think we’re getting to the point where the product offerings from technology stocks are so close that the phones are becoming a commodity. This also means that there is much more importance to every product offering from Apple, as any slip-up could give one of the other technology stocks the opportunity to take market share away from Apple.
We’re now seeing this with Samsung Electronics Co. Ltd. (KSX/005930). A few years ago, no one would have thought to put a Samsung phone ahead of an Apple iPhone, but now the market sentiment has indeed shifted.
Chart courtesy of www.StockCharts.com
While some technology stocks have had issues hitting new highs, this is not a problem for Apple. However, the most recent high in the stock price might have been the result of a market sentiment shift. With the latest high in the stock price, the Relative Strength Index (RSI) and the moving average convergence/divergence (MACD) indicator did not reach new highs. This divergence might indicate that market sentiment has topped out, at least over the short term, and that the stock is on the verge of pulling back.
Of course, as long as the stock remains above the support line, one must still consider Apple to be in an uptrend. It’s always dangerous picking tops, and I discourage it. However, considering weakness in many other technology stocks, as well as the global economy, it’s not inconceivable that market sentiment is beginning to shift.
Having said that, we must wait for the stock to break below its current support level. Once it breaks down, Apple will most likely find support near its 200-day moving average (MA). Conversely, if the stock were to exceed its resistance level of $680.00, it would put it in a highly probable situation of testing the highs of the year. In either case, the stock is currently in no man’s land; one must be patient to see how shifts in market sentiment affect the stock price and look to trade in the direction of the breakout.