Daily Wealth

About the Author Daily Wealth

In a nutshell, our investment philosophy here at DailyWealth is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. So our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. We believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Apple Inc. (AAPL): Double-Digit Losses Are On The Way

By Brett Eversole

The World’s Biggest Company is Getting Bigger

Apple Inc. (NASDAQ:AAPL) is up 18.4% since the beginning of 2017. To put that another way, Apple has added $98 billion in market cap in less than two months.

That’s the equivalent of adding the entire combined value of Ford Motor and FedEx in just eight weeks.

This has sent Apple into a serious uptrend, but the rally may have gone too far, too fast.

You see, Apple recently hit its highest overbought level in history, and that means we could see double-digit losses over the next year. Let me explain.

We always like to buy ignored investments, things no one else is interested in owning. Instead of following the hot trends, we make contrarian bets. That’s how we pocket our largest gains. Buying Apple is not a contrarian bet right now, it’s the exact opposite.

RSI Alert: Apple Now Overbought

Apple is currently at an extremely overbought level based on its relative strength index (RSI).

The RSI is a measure of a stock’s recent gains and losses. It tells us when a stock is overbought or oversold. Oversold stocks tend to rally, and overbought stocks tend to correct. An RSI reading of 70 or higher means a correction is likely, and the recent rally in Apple has moved its RSI to crazy levels. Take a look…


Apple reported fantastic earnings at the end of January, the company beat estimates for revenue and earnings, and the stock soared 6.1% the next day as a result. This pushed Apple to overbought levels, while the stock and its RSI have moved higher since.

Last week, Apple hit an RSI extreme of 90. That’s the highest RSI in Apple’s history, and it’s a warning sign for investors.

You see, Apple’s RSI has only broken above and fallen back below 85 five other times in the last decade. And these were not good times to buy. Take a look:

3-Month

1-Year

After extreme

1.2%

-10.2%

All periods

6.1%

26.9%

You don’t become the world’s largest company without massive stock market gains. Over the past 10 years, Apple’s shares have typically gained 6.1% over three months and 26.9% annually.

With numbers like these, it would have been hard to lose money investing in Apple over the last 10 years, but buying its shares at a high RSI level would have been a good way to do it.

Over the past decade, similar overbought RSI levels led to small, 1.2% gains in three months, and 10.2% losses over the next year. That’s nearly a 37-percentage-point underperformance compared with Apple’s typical annual return.

I’m not telling you to short Apple, and I’m not saying its business is in trouble, but Apple’s RSI tells us the market has moved too far, too fast. And history says losses of 10% over the next year are a likely result.

That makes Apple a company to avoid until that changes.

  • LiberalPsychosis

    Apple will hit $150 before it gets remotely close to a 10% drop.

    • John Brenner

      Contrarian technical analysis?

      • Even amid the latest iPhone 7 Plus issues?

        • Bo Mathis

          What issues? I’m unaware of a single one and we have four of them.

        • RCC

          Yes, the iPhone 1,2,3,4,5,…,7,8,9 always has issues…

          Issues like the #1 in COSTUMER SATISFACTION.

  • AAPL.To.Break.$135.Soon.>:-)

    It’s interesting to know the writer of this article believes he is smarter than Warren Buffett. Berkshire-Hathaway bought into Apple when everyone said Apple was doomed. I wonder if this Eversole has as much money and as large a following as the Oracle of Omaha. It will be very amusing if struggling investors listen to this Eversole by avoiding Apple and Apple goes up even higher over the course of the year. Notice how he simply says to not buy Apple but he doesn’t tell you which stocks to buy instead. However, I’m willing to bet most of the market investor sheep will follow Warren Buffett as they usually do because they worship the man like a god. I believe more investors will be buying Apple over the next few months than dumping the stock. Let’s see who’s right.

    If it were Amazon that had the gains Apple has he probably would be telling you to buy more Amazon. Nobody ever says to profit-take on Amazon no matter how fast and high the stock climbs. Apple goes up a little bit recently (it was in the toilet for nearly two years) and someone starts crying to sell the stock. Fine with me. Let the fools sell Apple and go buy Tesla and see how much money they make. Apple’s dividends are decent even if the stock does go back down some. I’m not sweating it. I’m into Apple for the long run.

    • John Brenner

      Warren bought shares BEFORE the run up, he buys early and over a long period of time; in addition, he has sometimes bought too early. He is strategic and long term, he most likely was not expecting the run up that came after his recent purchases.

    • Steve S

      YOU ARE SO RIGHT! Well you and I may not be “right” – forecasting is hard, especially of the future… but I really believe what you wrote is solid– very nicely written too! I’ve owned AAPL since 2 weeks after 9/11 and continue to increase my shares in this amazing company. APPLE MAC ONLY SINCE 1989!

  • Polaritypictures Ken

    the stock has dipped the last 2 years, why shouldn’t it go higher? not taking the app market or services into consideration. Analysts as a waste of time to pay any attention to, they are barkers saying whatever and pulling numbers out their butt to prove their point. Not very many companies out there that can support HUGE Cities(Yes Cities) in China to make their products. I’ll say it’ll go down 10-15 points and go back up to $150 at the end of the year. often does before the wwdc and the announcement of products and seasonal quarter. a few of Intel’s chips will guide what’s coming out, the new modem chip and kaby lake cpu.

    • John Brenner

      “I’ll say it’ll go down 10-15 points and go back up to $150 at the end of the year” ; you sound like you agree with him, but start out by saying, “Analysts as a waste of time to pay any attention to, they are barkers saying whatever and pulling numbers out their butt to prove their point.” really?

  • Guest

    He’s a chartist – as such, he knows nothing.

    • John Brenner

      He is simply stating facts, unlike some opinions being shared here today.

      • Guest

        No, he’s trying to predict the future from past charts. It doesn’t work.

      • RCC

        Which facts? AAPL is up

  • rallyman

    It would have been a great buy for ten years but this year it will lose double digits so do not buy it because you MIGHT get a better price???

    Nothing wrong with product or management so, as The Oracle has said, sometimes you have to ignore the noise over the long term. Others add that if the reason you bought has not changed then do not look back as the price fluctuates and start burying yourself with a lot of shouldof-couldof-wouldofs.

    Maybe you bought when it got hot and then it “corrects” but where will you be in a year or two or whatever your time frame is.

  • aardman

    The existential conundrum that is the stock analyst:

    If they are so good with their prognostications, why are they giving it away for free rather than keeping their predictions to themselves and making a ton of money in the markets instead?

    The only logically plausible answer I can think of is that they do make money but it’s through stock manipulation rather than true analysis. So the lesson for the average investor is don’t believe a word they say because they’re only taking you for a ride. And pilfering from your investment kitty in the process.

  • jdsonice

    This is nonsense. I remember when people were saying dump Apple stock at $41. Thank god I did not listen to those dimwits. Timing a stock is impossible. No matter what analysis is done the stock can go down because the CEO caught a cold or someone in Sudan farted. Give me a break. Apple is going to do well do not listen to this fear monger. There is a hidden agenda here.

  • RCC

    OH IT’S DUMBER ANALYST!

    Between Feb 27, and today, AAPL grew even more at 1.67%!

  • LiberalPsychosis

    Hey, Brett, great job!

  • Whitey Joe Young

    Stocks on an uptrend are overbought…. forever, or until their uptrend stops. You cannot base your entire investment thesis on a stock simply on the chart, or simply on the fundamentals of the company. It has to be both, together, and augmented by sentiment to confirm the trade.