Apple Will Continue Falling, Despite 'Warren Buffett Effect'

Nothing has changed about Apple despite the $1 billion investment by the Oracle of Omaha. Even Jim Cramer says the stock is tough for investors to own right now.

Author:: Richard Saintvilus
Publish date:: May 17, 2016 9:50 AM EDT

Warren Buffett's $1 billion bet on Apple (AAPL) - Get Report gave the stock a big boost but in the long run it has done nothing to stop the decline.

Buffett disclosed his bet on the tech giant in a 13F filing with the Securities and Exchange Commission by his holding company, Berkshire Hathaway (BRK.A) - Get Report (BRK.B) - Get Report . The stock jumped Monday, but this is nothing more than a "dead cat bounce."

Apple stock, currently at $94, is certainly cheap at current levels. Given its $231 billion or so in cash, the company has always been cheap. The stock is now priced at eight times forward earnings, excluding its cash, which means the market is saying Apple's iPhone-heavy dependent business is at risk.

See this chart, courtesy of TradingView.

Even TheStreet's Jim Cramer, whose Action Alerts PLUS holds Apple, recently admitted on his Mad Money program the stock has been a dog for the past year. He believes the stock is in the process of hitting a bottom but "until we see some of the long-time Apple bulls turn their tepid buy recommendations into holds or sells, Apple will continue to be a tough stock to own."

Apple is a holding in Jim Cramer'sAction Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AAPL? Learn more now.

The Buffett effect will soon run out of steam. While the chart above shows support at around the $90 per share (blue arrow), AAPL is still technically broken, given that it trades below all three of its support trends: The 20-day ($97.19 -- thin blue line), 50-day ($103.04 -- pink line) and 100-day ($100.94 -- yellow line). The shares are still in significant bearish territory. This means there will be a race to sell into these types of rallies.

Monday's SEC filing revealed Buffett bought 9.8 million shares of Apple. The average price of his purchase was about $108 per share. AAPL closed Monday at $93.88. The shares have declined some 10.81% year to date, including declines of 14.54% in the past 30 days. All told, Apple's stock has plunged almost 30% from the 52-week high of $132.97. There's tons of implied value there but despite will the company be able to deliver?

So, Buffett or no, nothing has changed about Apple. Based on his average buy in price of around $108 per share, he's already down at least 13% on his stake through Monday's close.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.