Apple share price

The model for Apple Inc. has one defining CPI leading the share price: the index of housing furnishing and operations (HFO) leads by 13 months. The index of housekeeping supplies (HOS) is synchronized with the price. The model is presented in Figure 1. In 2010, it accurately describes the real price.

So, the best-fit 2-C model for AAPL(t) is as follows:

AAPL(t)= 19.03HFO(t-13) - 10.13HOS(t) + 73.86(t-1990) – 1862.5

The predicted curve is contemporary with the observed one, with the standard error of $13.8 for the period between July 2003 and April 2010. The time history of the residual error is also shown in Figure 1. The largest discrepancy was observed in 2008 when the price had the biggest fluctuation around an almost constant level.

The next move in the price will be defined by the movement in HOS since the HFO has been gradually falling since March 2009. This means that the first term in the above relationship will start to fall in May 2010. Therefore, the input of the HFO will be negative in 2010, and the price will drop by almost $75 due to the decrease from 129.65 (April 2009) to 125.99 (April 2010).

The trend in the HOS was positive before April 2010, when the index dropped to 181.997 from 183.463 in March 2010. If the positive trend will continue after the sudden drop, the price of AAPL share will be also decreasing. If the drop was a manifestation of the turning trend, when the price will depend on the slope of the new negative trend.

The time trend term adds ~$74 per year to the price. It will continue if the model does not suffer big changes. The current model was reliable during the past 8 months.

All in all, the price of AAPL will likely be growing at a much lower rate than during the last 8 months. However, it can retain some momentum if the HOS index will not be growing too fast.

Figure 1. Observed and predicted AAPL share prices and the residual error.

References

Kitov, I. (2010). Deterministic mechanics of pricing. Saarbrucken, Germany, LAP Lambert Academic Publishing.