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Apple alert: When big stocks go parabolic, trouble follows

Judging from a couple of recent examples, it isn't good news when the world's largest company (by market capitalization) goes parabolic. Apple Inc. is making these moves right now, distancing itself from the rest of the market – and the world's second biggest company, Exxon Mobil Corp. – as its share price climbs higher, faster.

Market Anthropology (via Abnormal Returns) looked at Microsoft Corp. when it was No. 1 in 2000 and PetroChina Co. Ltd. when it was No. 1 in 2007 and found that the parabolic moves leading up to peak levels weren't signs of good things to come.

"With past being prologue, whenever the performance chart of the world's largest market cap company goes parabolic, well – the jig is up real soon," the blogger said.

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That is, stock prices sagged soon after. Microsoft has fallen 67 per cent since hitting its peak; PetroChina has fallen 43 per cent.

Will Apple fall prey to a similar pattern? Who knows, but there are a few things to point out here, not least of which is the fact that Market Anthropology's sample is too small to be of any use.

Perhaps the biggest difference is the fact that Microsoft and PetroChina went big and parabolic at a time when investors were particularly exuberant over their respective sectors. At Microsoft's peak in 2000, the dot-com bubble was at its breaking point, and Microsoft shares traded at an absurd valuation of 63-times earnings. By comparison, Apple trades at a reasonable 15-times earnings on Wednesday and it isn't part of a broader bubble in technology stocks.

In the case of PetroChina, its peak coincided with hysteria over crude oil: The price crossed $100 (U.S.) a barrel for the first time ever when PetroChina was surging, and oil was on its way to a record high of $145 a barrel several months later.

It's hard to see such hysteria in Apple. Yes, the bullish argument for the stock sees ongoing growth in iPhone sales as the company claws out a bigger market share – and maybe the start of a modest dividend payment. But given the stock's modest valuation based on earnings, it seems clear that a lot of investors are equally concerned about what's next: Can Apple score with another blockbuster product?

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About the Author
Investing Reporter

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense. He worked at the Financial Post as an investing writer and daily columnist before moving to the Globe and Mail in 2008. More

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