Well, with all of the noise surrounding APPL, you knew I would have to comment on it. After all, way, way back last fall, when it was just coming off of its $700 highs, I posted a commentary on the potential for it to fall to $550-ish. Here it is: http://www.valuetrend.ca/?p=1488
Boy, was I overly optimistic! But- despite my less aggressive downside target– I do believe that I was fighting the crowd in making any bearish comments about APPL at the time. Hats off to my fundamental analyst here at ValueTrend, Craig Aucoin, for telling me that he felt the stock could see the mid-$400’s. I thought he was too aggressive in that target, so I guess I owe him a coffee. Starbucks, of course (I’ve blogged on why I like that stock, and own it in my managed equity portfolio)! Here is my blog on SBUX: http://www.valuetrend.ca/?p=1604 . Whatever the case, the current question is, where does APPL go from here?
Two things are standing out on the charts. First, on the daily chart, you can see Thursday’s gap down. This gap is a sign of an oversold condition. So, after a little more noise on this stock, there may be a short termed pop to fill that gap back up to near $500-ish. Note the gap, and the oversold momentum indicators on the chart.
However, the bigger picture suggests two other, perhaps more important things. First, we are seeing a downtrend. Lower highs, lower lows since the $700 peak. Technical analysis 101, my friends—don’t fight the trend. The stock has also broken its important 50 and 200 day MA’s—also on the chart–and note the bearish crossover.
Next, the really important level of support for this stock comes in at the top of an old resistance point of around $400. When discussing the stock, Craig asked me if I would buy it there, given the very reasonable valuations that would emerge (all things being equal) at current levels. The answer to that question will be found in identifying what stage the stock is in at this time. If you haven’t read my book Sideways, here’s the nuts and bolts: Stocks move in 4 phases, and the first phase (which occurs after a bear market/downtrend) is a basing phase. Until you see a stock or the market find a bottom, and bounce off of that bottom a few times, don’t touch it. We need a break of the “lower highs, lower lows”. Then- look for a neckline breakout. My call on RIM when it broke its base neckline ( http://www.valuetrend.ca/?p=1654) is a classic example of this type of strategy. Base breakouts are amongst the safest ways to trade – and AAPL needs to spend some time basing before I will play the stock.
Next week: a new twist on a seasonal trade
Stay tuned next week, when I will present a very, very interesting study (well, I think so!) on trading low beta and high beta using seasonal trends. I have a bit more polishing to do, then I will post it here. Watch for it!