Apple Is Far From Rotten

What the heck is going on with Apple (AAPL - commentary - Cramer's Take) stock? Why can't this stock go up? How come it can't go up even when the market's strong? That's what I hear and read everywhere I turn this week.

The three major indices are all near multiyear highs, and Apple's down more than 30% from its peak earlier this year. But all is not lost, and I plan to ride out this ugliness with my Apple shares firmly in hand. Believe it or not, despite having the ugliest-looking chart since the career of my former college basketball coach, Dave Bliss, after his Baylor debacle, Apple's not going out of business.

Let's try to figure out why this stock is trading like it is, and I'll explain why I'm still a believer.

In all seriousness, a big part of the stock's problem is indeed that ugly chart, which looks like it's about to fall off a cliff. When a good stock is in a nasty downtrend that has ground on and on, as Apple has for the last couple of months, the downtrend can become self-reinforcing. It's a graphical illustration of the "sellers loom lower" dynamic: The more the stock grinds lower, the more sellers come out and grind the stock lower. Unfortunately, for those looking for a quick pop in this stock, I don't think there's any way to game an end to this grind. It'll be until it isn't.

Part of the "technical" problem is that the stock got ahead of itself. It was too much too fast when the stock ran from about $70 to $86 in a straight line in the first couple of weeks of 2006. Too many momentum-chasing, weak-handed traders were piling in, and the many permabear hedge fund shorts (who have fought this stock since it started moving back in 2003 after it "got ahead of itself" on that move from $7 to $10) squeezed themselves out and covered into the momentum. And all of that movement, coming on top of another great year for the stock in 2005, worked into a self-reinforcing cycle that lasted until it didn't. In case you haven't linked the dots between this paragraph and the prior one, my point is partly that the ongoing grind lower is likely to end. I just don't know when.

---

At the time of publication, the firm in which Willard is a partner was long Apple and Google, although positions can change at any time and without notice.

Cody Willard is a partner in a buy-side firm and a contributor to TheStreet.com's RealMoney. He also produces a premium product for TheStreet.com called The Telecom Connection and is the founder of Teleconomics.com. The firm in which Willard is a partner may, from time to time, have long or short positions in, or buy or sell the securities, or derivatives thereof, of companies mentioned in his columns.None of the information in this column constitutes, or is intended to constitute, a recommendation by Willard of any particular security or trading strategy or a determination by Willard that any security or trading strategy is suitable for any specific person. Willard appreciates your feedback -- click here to send him an email.