Apple Bubble

A pair of the latest magazine cover stories has caught the eye of Paul Montgomery, today's foremost practitioner of contrary opinion technique and the inventor of the magazine cover indicator. (You can read more about Paul on page 212 of my book.)

Above this post you can see images of the latest covers of Time magazine and Newsweek. They feature Steve Jobs and his latest product, the i-Pad. From his research on magazine covers Montgomery discovered that the appearance of a CEO or his company's product on the cover of a general interest newsweekly like Time or Newsweek is often associated with an important high or low in the company's stock. I discuss this magazine cover indicator on pages 92-95 of my book.

As you can see from its monthly bar chart Apple Computer (AAPL) has nearly tripled in price over the past year. It has been one of the leaders of the current bull market. But the two magazine covers above are warning us that public enthusiasm for Apple Computer has reached bubble levels. Montgomery has found that in this sort of circumstance the final high of the company's stock price follows the publication of the cover stories by about 4 months on average. On this basis we should expect AAPL to move higher for the next 3 or 4 months. But 12 months from now it is very likely that AAPL will be selling substantially lower that it is now.