Disclosure: Cash

Please note that I’m not asking if Apple will go lower, I’m asking what is the lowest you could possibly imagine that Apple’s stock price will go. Do you think we’ll reach last week’s low of $85, or will we shoot past $85? Perhaps you believe that we’ve already reached the bottom, and that this current move in the markets is simply reflexive from that huge surge on Monday?

This past Sunday I wrote a post suggesting that AAPL and the markets have not yet seen the bottom by a long shot. And as I said, “just for kicks” let’s make a prediction that the bottom of this Bear was not yet within our grasp, but at levels too dire to even imagine. I said 50 seemed to be the ultimate bottom for AAPL based on the charts, but I’m going to revise that upward because Apple has no debt, and most companies are getting hammered because they have debt. So I’ll put a premium on apple of about $24 a share, which represents the cash they have in the bank.

So, for the S&P the Bear bottom I came up with was 775, this would represent fair value in terms of a price to earnings ratio at 15. Currently the S&P has a PE of 17. So that’s another 15 percent, in terms of price, that the S&P would have to drop to reach that level. If we extended that to AAPL, with a current price around 95, that would come out to somewhere in the low 80s.

Now this is all predicated on the market gravitating towards its fair value. I don’t know if that’s a valid assumption or not, but it seems reasonable that a market would move towards that level in such a decline, perhaps even overshoot it some before settling on it. So if we overshoot some, many stocks are going to be sucked into a black hole. Apple may overshoot 80, but it has a strong balance sheet, and good price support right around 74, so that’s where I’m going to put my money, right at 74. If it reaches there, I’m all in. If we manage to test 85, then I’m 25 percent in, if we hit 80 I’m 50 percent in.

The S&P 500 appears to be consolidating into a Bearish continuation pattern, that you might liken to an inverse pennant. If this pattern plays out, I would expect that after Wednesday’s (October 15th) rough decline in the markets, that we will see a bounce of some sort, and find resistance just under 1000.