Shares of Apple (AAPL) Hit All-Time Highs: Buy, Sell, or Hold?

NASDAQ: AAPL | Apple Inc. News, Ratings, and Charts

AAPL – While the S&P-500 (SPY) has seen an incredible run off of its December lows, the real star in the market has been tech juggernaut, Apple (AAPL).

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While the S&P-500 (SPY) has seen an incredible run off of its December lows, the real star in the market has been tech juggernaut, Apple (AAPL - Get Rating). The stock’s move towards services has allowed it to move back to positive sales growth year-over-year, and funds have been eating up the stock in praise of the company’s direction. The stock is up 65% for the year, and 17% so far as we near the half-way point of Q4. There is no disputing that the company’s improving sales growth and record-high annual earnings per share for FY-2021 justify this move, but I believe Apple is getting ahead of itself short-term. For this reason, I see this as an opportune time for traders to book profits in the stock.

 Apple has undoubtedly been the best place to be among the mega-caps this year, with the company dwarfing the performance of its FAANG peers, as well as the titan in the technology space, Microsoft (MSFT). Apple’s 65% return year-to-date is better than that of Netflix (NFLX), Google (GOOG), and Amazon (AMZN) combined and has left the stock quite expensive short-term. As we can see from the chart below, this is the highest P/E ratio that Apple has traded at in the past seven years, and its previous trip up to these altitudes was met with intense selling pressure. The 18 P/E level has been a ceiling for Apple over the medium-term, as the red line below displays.

 

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As we can see from the above chart, Apple’s P/E ratio is currently sitting over 22, nearly 20% higher than the readings in 2015, and 10% higher than the readings in late 2017 and late 2018. These three trips up to these levels led to average corrections of 33%, and a median correction of 35%. While it could be different this time, I would not be surprised at all by at least a 15-20% correction in the stock This would see the stock head back below the $230.00 level at some point in the next six months.

 Moving to the technical picture, things are also getting quite frothy. The weekly chart has been a straight surge higher the past six months and a 55% rally off the June lows. This has left the stock the most overbought it has been since Q3 2018. The Q3 2018 correction saw Apple plunge 40% in less than four months, a massive wipe-out of anyone that chased the stock above the $220.00 level.

 

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(Source: TC2000.com)

Finally, looking at the daily chart, the run is even more parabolic. Apple is currently nearly 30% above its 200-day moving average (red line) and is now quite extended from its $230.00 level breakout. This looks like chasing at this point by those that are frustrated to have missed the trade, and crowded trades rarely ever work out short-term.

 While Apple is only trading at a 2-year forward P/E ratio of 18.6x based on FY-2021 estimates of $14.00 in EPS, that is forward earnings of 2 years ahead. It is certainly possible that the stock can head to $300 or even $350 if it can hit these estimates for FY-2021, but the fact is that we are two years ahead of these earnings, and the stock is already pricing a good chunk of this future growth in at these prices. Based on this, I would not be surprised to see the stock sell-off on its next earnings report, or before it, no matter how good the news is.

A screenshot of a map Description automatically generated

(Source: TC2000.com)

Apple has become an extremely crowded trade and is more expensive than it’s been at any point in the past seven years. Based on this, I believe the wise move is selling into strength here for traders. For investors that hold the stock long-term, trimming a little off the top at parabolic levels like we have currently probably isn’t a terrible idea.


AAPL shares rose $0.15 (+0.06%) in after-hours trading Wednesday. Year-to-date, AAPL has gained 70.18%, versus a 25.41% rise in the benchmark S&P 500 index during the same period.


About the Author: Taylor Dart


Taylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...


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