Market Overview

Apple and Priceline Charts Look Familiar...

It is an old cliche - "what goes up, must come down." In the stock market, however, this oft used phrase is almost always accurate. We have seen it time and time again with a myriad of stocks - a huge gain followed by an even more epic collapse. Maybe the most recent example of this phenomenon was the unbelievable rise of Netflix (NASDAQ: NFLX), before the stock came collapsing down amid operational and earnings headwinds. At the beginning of 2009, NFLX shares were trading in the low $30 range. By January of 2010, the stock had reached the $50 level. nflx.png This preceded an incredible run up in the name, which sent it as high as $300 during the summer of 2011. The trajectory of the move in NFLX was incredible and many short-sellers were left far poorer trying to call a top in the name. The fact remains, however that there thesis has largely proven correct, even if they lost rather than made money on it. Of course there are numerous other examples of stocks which have made torrid runs, and seemingly could do no wrong, before eventually crashing back down to Earth. gmcr_0.png

Another recent name that has experienced this phenomenon to a certain extent is Green Mountain Coffee Roasters (NASDAQ: GMCR). At the beginning of 2009, GMCR began an incredible run which saw the stock rise from the $7-$8 area all the way up to over $100 by the Fall of 2011. Since hitting a high of $115.98, however, GMCR has been flattened and is trading at only $48.11 today.

The move lower was swift and extremely costly for shareholders who bought the stock near its highs and have held on. Other examples of supernova stocks that simply could not sustain their quick and heady success include Crocs, Inc, (NASDAQ: CROX) and Sirius XM Radio (NASDAQ: SIRI) to name a couple. pcln.png

With this pattern established, a very few examples of stocks that have been able to sustain incredible gains year after year, it is highly probable that stocks such as Priceline.com (NASDAQ: PCLN) and Apple (NASDAQ: AAPL) will eventually pullback sharply. Over the last 5 years, PCLN shares have risen an incredible 1,237% and the stock is currently sitting near its all-time highs of $775.00. All of the gains in the stock have come in the aftermath of the financial crisis, so PCLN's upward trajectory has really only lasted around 3 years. aapl_0.png

The exact same situation has played out in Apple, although its 5 year gains are not quite as impressive. Over this time, the stock is up more than 500% and like PCLN, shares are in the vicinity of all-time high levels of $644.00. Given the historical parallels that these two stocks have to other supernova stocks, it is likely a question of when, not if, they will eventually crater. At the very least, this is something that investors should keep in mind while they are speculating about which one of these high-fliers will reach the fabled $1,000 level first.

Posted-In: Long Ideas Short Ideas Economics Trading Ideas Best of Benzinga

 

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