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Apple faces meltdown

January 4, 2023

In chart terms Apple looks to me like a lost cause. There is a real danger that the price action is going to follow Tesla (see chart below). Tesla shares are in free fall and could end up collapsing as the Elon Musk bubble bursts.

It is at moments like this that fundamentals become curiously meaningless. Good news sparks rallies, no news leaves the shares falling, bad news and the shares are hammered. It seems unimaginable that Apple shares could be facing this fate but they have a threatening chart. Tesla shares have broken down from a head and shoulders pattern, Apple shares are doing the same.

You could say Apple shares are testing support but that is the problem with bear markets, support doesn’t work. Apple is the world’s most important share so if they break down badly that is going to send shock waves through stock markets, especially in the US. It is still a time for extreme caution.

This doesn’t mean that either company is remotely facing going out of business. I will continue to spend my life surrounded by Apple products, many of us will consume their services and growing numbers will drive Tesla cars but that is no longer the point. There is always a huge amount of sentiment built into share prices. People sometimes say shares are 80pc sentiment, 20pc hard-core value; that is a moving feast but shows how share prices can swing around on relatively modest changes in the fundamentals.

Another breakdown for ARKK

Another scary chart is ARKK, an actively managed ETF, which has stayed doggedly loyal to a string of former high flyers now in free fall. The chart shows yet another breakdown and a serious one. These shares could be heading for $15. The natural human instinct after such a big fall is to look for a rebound but that is not the message of the chart, which is warning that further weakness is likely. That is what charts do; they make you think outside the box.

Electric cars – a sector under pressure

Electric cars as a sector are under pressure. While some Chinese shares are behaving well Nio is not one of them. This chart looks headed lower to me. They have already come down a long way so this chart suggests that there may be financial problems ahead for companies in the sector. There could even be parallels with the famous railway boom and bust in the mid-19th century which ruined many investors. Railways were as important as the investors imagined but as a sector competition made it hard to make much money and thee were many bankruptcies.

It s interesting to look at a chart of the Nasdaq 100 in the light of what is happening to shares in its largest constituent, Apple. This is a long term chart where each candlestick represents three months. It looks threatening. There is a strong possibility that what we have been seeing over recent months is a mid-term consolidation. The index is still up 10-fold on its level in 2009 so further weakness would not be so extraordinary. Coppock, based on a monthly chart, is still falling. There is nothing to say this index is a buy.

Strategy

Buyers beware. This fierce bear market may not be over yet. We are always looking for opportunities to buy and signs of better times ahead. This is only human especially for an optimist like me but the charts do not lend themselves to an optimistic interpretation. On the contrary the chart message remains threatening.

I imagine many analysts must be feeling deeply disillusioned. All their analyses and predictions are just being swept aside.If you read the report from the latest Nio quarterly analysts’ meeting it is a blizzard of positivity.

In October, overcoming the production and supply chain volatility, we delivered 10,059 vehicles, representing a 174.3pc increase year-over-year. We will continue to collaborate closely with our supply chain partners to stabilize components supply and further accelerate the vehicle production and the delivery. We expect the total number of deliveries in the fourth quarter of 2022 to be between 43,000 to 48,000.

Q3 2022, 10 November 2022

Bear markets become their own justification

All good but the shares are not responding in the slightest and that is disturbing. It is amazing how often charts tell the story better than words. There comes a point too where bear markets become their own justification. Falling share values create a negative wealth effect that justifies the fall and triggers balance sheet pressures for companies and investors.

This doesn’t mean that Coppock indicators are not going to turn higher in 2023 or that we are never going to have another bull market. It just means they could turn higher from levels that are very extended on the downside.

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