Reality Check

Reality Check

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July 06, 2010

Will Apple Drop to $45?

By Robert Hashemian, Vice President of Web Development


I must admit to a bit of surprise when I was contacted recently by BAM Investor with an offer of explanation in response to a recent post I had published in my blog. I had made that post after reading about BAM Investor bold prediction that Apple's (News - Alert) stock will soon drop to $45. Apple is currently hovering near $250. The last time the stock saw $45 was in August 2005.

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With a constant barrage of new and innovative products coming out of One Infinite Loop (Apple's headquarters in Cupertino, CA (News - Alert)) and a litany of devoted followers, and $40 billion hoarded in cash I can't see any justification for this forecast, but I admire JG Savoldi, Chairman and CEO of BAM Investor, for his steadfast conviction and sticking to his guns.
 
His guns, as JG explained on the recent call, is a propriery behavioral tool called the Behavioral Analysis Model (BAM) used to predict future price movements in human-traded markets. The model was developed based on the market behavior in the periods of 1920's and 1930's covering the pre- and post-eras of the great depression as well as the timeline leading to the market crash of the 1987.
 
The BAM model has several components, but in simple terms it takes snapshots of the the market (or a stock) performance over ever more fine-grained periods and uses computational analysis as well and human input to produce critical price points known as magnets with timeline predictions of price convergance to those magnets. JG explained that the process takes about half an hour to complete.
 
The BAM model is more closely related to technical analysis than fundamental analysis and as I understood the magnets seemed similar to support and resistance levels.
 
Back to the Apple prediction, based on the BAM model, JG sees a rapid decline (a few weeks or months) for Apple shares to $155 and another decline to $45 no later then Fall 2011.
 
I asked about the past success rate of the BAM investor and JG (who is currently bearish on the market as a whole) pointed out the recent bullish call on the US dollar, bearsih call on oil and bearish call on the markets in 2007, all of which were proven right.
 
Asked about his personal trading on Apple, JG said that having recently sold a few put options he had on Apple, he has no positions on Apple to avert any claims of conflict of interest. He also has not been contacted by Apple representatives regarding his forecast. Finally asked if he personally owns any Apple products, he said he did not, but was considering an iPad or a Kindle from Amazon.
 
While I appreciate JG's confidence in the BAM model and the prediction of $45 Apple stock, I still can't see that kind of a catastrophic drop unless the company or the whole market are impacted by a sufficiently negative force such as a paralyzing terrorist attack, or a yet to be revealed enormous financial misconduct by Apple. I am no fan of Apple or its products and I believe that its current valuation is unjustified and due for a severe correction, just not as severe as what BAM Investor is predicting. Meanwhile if I were Apple I would play down future growth and earnings potentials to put the breaks on the runaway stock and bring some sanity to the otherwise smitten traders.
 

Robert Hashemian is VP of Web Development for TMCnet.com with a keen interest in financial markets. To read more of Robert's articles, please visit his columnist page. He also maintains his personal Web site at www.hashemian.com.
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