If everyone is thinking alike, someone isn’t thinking

Today I’d like to examine the technical profiles and the valuation spreads between Apple and Alibaba. It is my opinion that this comparison offers more than just a comparative analysis of the two stocks. I believe the comparative is a commentary of the relative overbought and overvalued status of tech stocks within the broader market of stocks. Lets get started!

The risk of AAPL

It doesn’t take a genius to spot the recent parabolic move by APPL (amongst other tech stocks). I’ll get to the technical commentary in a moment. But first:

BearTraps: “NO company on earth with more valuation downside than AAPL! Xi could obliterate Tim Cook´s entire supply chain in 5 minutes. Close to 90% of AAPL´s products – manufacturing capacity is in China.  They (AAPL) are desperately trying to move exposure into India. If China invades Taiwan, AAPL has far more to lose. Not to mention, of Apple´s $384B total in 2023 sales, $102B are in China and Asia ex-Japan! Close to 60% of Apple´s sales are OUTSIDE the USA.

For the last few months, energy stocks, financials, retailers, and commodities have been pricing in economic stress, while growth stocks are talking up a soft landing. Both can´t be right.”- Larry McDonald

Lets look at the AAPL chart. I’ve added the cumulative moneyflow line (A/D) to give us a view of the trend for money entering or exiting the stock. Below that is Moneyflow Index (MFI), which is essentially an RSI momentum oscillator applied to moneyflow. This indicator tells us if that moneyflow trend is getting ahead of itself.

You’ll note that the stock broke out in the New Year after a general downtrend in 2022. The % above its 40-week SMA is near 20%, suggesting an overbought position. Cumulative moneyflow is positive, but the MFI oscillator suggests that its ahead of itself. Note how these conditions (% over its SMA at 20%+, rising AD but an overbought MFI) lead to two sharp corrections in 2020. Technically, it would be hard to argue that now is the time to buy this stock – aka, it is deserving of at least a correction.

 

BABA paints a different picture

Now lets look at the BABA chart. Here, you have a triangle consolidation pattern, which is trend-neutral. One must wait for a breakout, unless you are a neartermed swing trader. For more on that, take my online TA course discussed at the bottom of this blog. Cumulative moneyflow (AD line) is also consolidating. MFI is consolidating in a triangle. The point here is that this stock is NOT ready to buy…. BUT…it is NOT overbought like AAPL! 

Think of it: For AAPL to double from here, the market capitalization needs to reach $6T, or 25% of U.S. GDP. Meanwhile, BABA just needs a market cap of $460B in a double (just 2.5% of China’s GDP).

Technically, the same picture arises. A breakout by BABA from the current pattern, should it occur, offers much more upside than the overbought picture that AAPL currently offers.

BearTraps: BABA sales growth is 2x Apple´s. Alibaba trades near 2x sales ($230B vs. $126B) vs 8x for Apple ($3000B vs. $385B). We have a PE of 33x for AAPL vs. 10x for Alibaba. There are now 13 BABAs in one Apple ($3000B / $230B = 13). This is mad mob – passive investing overdose – on stage. The only explanation for this madness comes down to passive capital flows into index funds, squeezing more and more patrons into the crowded theater. We are NOT saying Alibaba is a better company than Apple. We are questioning the appearance of safety.

To us, at a 13-1 ratio between AAPL and BABA, we have moved into mass delusion territory.” 

“If everyone is thinking alike, then someone isn´t thinking!” General George Patton

 

Reminder

Valid only to midnight, Monday, July 31, I am offering a 30% discount on my Online Technical Analysis Course. If you follow my work, you know that I rarely do such discounts. So get on this if you have not taken the course already. 

Here is the link to access the course and learn more: https://technical-analysis.valuetrend.ca/

Participants tell me that it’s the most valuable thing they have ever done towards maximizing their investment success.

30% Discount Code (valid only until July 31, 2023): TA30

4 Comments

  • Hey Keith,
    I don’t have a comment about this blog, but I wondered, did I somehow miss this months bear-o-metre reading that you usually comment on at the beginning of each month?

    Reply
    • No – I haven’t done the reading yet–will be posting today (Tuesday) or Wednesday.

      Reply
  • Putting myself in the shoes if Buffet and C Munger, has Ali Baba been buying back shares? Apple has. and although it’s relatively tiny, it still is the only going for them.

    Also, does Ali Baba have an office, in downtown Toronto?

    Reply
    • BABA is in China. But I get the joke…aka police stations from China in Toronto. Good one!
      As noted, nobody is saying BABA is a “better company” than AAPL. But AAPL has many risks -especially from a valuation – and a political risk to boot.

      Reply

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