How far does the AAPL fall from the tree?

January 25, 20138 Comments

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: https://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: https://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 ( https://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!

8 Comments

  • Great technical insight on when to look for buying opportunities. Thanks again for your informative discussion regarding technical analysis on your recent speaking tour. Enjoyed your new book as well.

    Reply
  • Just wondered if you use logarithmic charts that often. Apple plotted on the logarithmic chart has yet to break it’s trend line drawn from 2003 until now. In fact it is nearing support even after the big sell off last week. The linear chart shows it has broken a major trend line.

    Reply
    • Yes I use log charts–longer temr trendline is intact, but nearterm its bearish. So, as mentioned above, watch for a base before acting too hastily, IMO.

      Reply
    • The bottom of the trading zone mentioned would get it into the levels you mention. Hard to say if it will find support at $400-ish as I suggest in the blog, or if it will break that support and go lower. Either way–my advice stands pat. Wait for a base to prove itself and then breakout, before considering a long postion in AAPL. Better to buy on the way up, rather than catch a falling knife.

      Reply
  • Given the discussion on downtrend breakouts and base building, would you mind giving me your opinion on IRE right now? Is it a buy at these levels? I can see the downtrend was broken in May 2012 when the stock started making a base. Then in late December 2012, it broke out of the 5-7$ trading range on some decent volume.

    I read your blog daily and this is my first post. Thanks

    Reply
    • Chris–thanks for reading the blog
      I try to avoid making individual stock comments for readers on this site. Its too time consuming for me to get into the habit, plus, thats what I do for a living so its difficult to offer a free service of that type here.
      Having said that–the one time I will comment on individual stocks is on my BNN MarketCall apearances–which should be coming up again in a couple of weeks or so. I’ll post on the blog when I’m on–and you can email the BNN link on their site, or call in with your questions.
      Thanks for the enquiry.

      Reply

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