Short Apple

I believe it's time to short Apple Computer (symbol AAPL). Close out any position if the price crosses above $73.

Below is a chart of Apple's entire trading history since their 1981 IPO (adjusted for splits, of course). I have highlighted in green five discrete "hyperbolic rallies", the most recent of which is the most dramatic and peaked last January 12th.


I'm not an Apple-basher, by the way. I bought my first Macintosh early in 1984, shortly after it was introduced. I worked at Apple for nearly three years in the late 1980s. And Steve Jobs has been my personal hero since I was a kid. So Apple is a great company with wonderful and well-polished products.

But their stock is atmospheric at this point. I would characterize the five tinted "hyper-rallies" as follows:

• 1982-1983 - General high-tech rally; anticipation of Lisa & Macintosh


• 1986-1987 - Post-Jobs ouster recovery and popularity of Mac as desktop publishing tool


• 1990-1991 - Post-Kuwait tech rally and popularity of faster Macs, such as the IIfx (Multimedia)


• 1998-1999 - Jobs influence on product line improves earnings and reputation


• 2004-2005 - iPod rally, earnings momentum

You can clearly see what happened after each of these five hyper-rallies. The stock fell, and it fell hard and fast. The stock already started doing this over the past 10 weeks, although the past couple of days have pushed the stock up to a much safer level for bears. Here's the entire "iPod rally", where the stock went up more than ten-fold.


Taking a closer look at recent history, you can see the Fibonacci retracement closely aligns to the price behavior. Indeed, today the 50% retracement was nailed to the penny. I'd say this is a relatively safe high reward/low risk trade.