Chart of the week: Could Apple lose 25% of its value?

As a post-Christmas recovery attracts heavy selling, this analyst forecasts what will happen next.

Apple is falling

Since last Autumn, members of the much-vaunted FAANG Gang (Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Alphabet's Alphabet (NASDAQ:GOOGL)) have seen their share prices in a sharp bear trend (except for Alphabet, which managed to squeak to a new high in April by a whisker).  

That wasn't supposed to happen!  After all, these giants of the tech world led the Nasdaq up to new highs almost single-handed.

They are all heavily involved in the future with leading edge technologies such as self-driving electric vehicles, space exploration/tourism, medicine and so on.  They have massive resources to fund such projects.

But as I never tire of pointing out: when times appear wonderful, that is when tops are put in (and where many investors buy in a 'fear of missing out' (FOMO) panic) – and so it proved with Apple, the one-time darling of the tech world.  

But now, times are changing, with the background music becoming more and more discordant.  The trade spat with China is now sounding a bum note in the semiconductor industry. Here is the S&P Semiconductor Index SMH showing the 20% decline off its late-April high:

Source: interactive investor  Past performance is not a guide to future performance

The month of May saw a sea change in sentiment.

So, let me review where we are with Apple shares and offer my ideas on the road ahead. As always, I like to start with the very long-term chart:

Source: interactive investor  Past performance is not a guide to future performance

The 15-year rise to the final fifth wave high has been astonishing.  But there have been hiccups along the way before the late Steve Jobs pulled the company around with must-have products that attracted a global army of devoted fans.  Remember the iPhone launches that resembled the old-fashioned Harrods Sales of yore in the degree of frenzy they created?

But how times change! Recent products have been greeted mostly by indifference – and rival companies are snapping at Apple's heels all the time.

The all-time high (ATH) was made in October at the $233 level, and from there the rot started to set in, with a plunge to $142 in early January as US/China trade tensions tightened and sales came in flat.

In my May 20 COTW on Amazon, I showed an almost identical plunge in the same time period.  

• Chart of the week: The very best waves to trade

That was not a coincidence.  The FAANGs are joined at the hip as they are kept aloft by bullish sentiment towards tech and the general risk on/risk off dynamic.  And, of course, without semiconductors, they will all have had their chips – and that industry is having its woes (see first chart above).

Back to Apple, and that setback was clearly overdone (note the extreme low momentum reading indicating an oversold position) and the shares recovered.  This is the period I honed in on, as I wanted to see if a new high could be created or, more likely, a sharp reversal to align with the semiconductor index.  Here is a close-up of the daily chart:

Source: interactive investor  Past performance is not a guide to future performance

The Christmas 'a?' wave low on the chart was followed by a vigorous counter-trend rally, where my best guess was for a turn at the Fibonacci 62% retrace at around the $200 region. But it had a little more gas to rise to the Fibonacci 76% 'Last Chance Saloon' retrace at $212.  From there, it has been straight down.

My best guess here (latest $175) is for a continued dip to the $170 area, then a bounce to perhaps the $190-$195 and then a very sharp decline to test the low at $140.  Much lower potential exists, and last year's $233 top seems very secure.

For more information about Tramline Traders, or to take a three-week free trial, go to  www.tramlinetraders.com. 

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.