Some Thoughts On $AAPL

It was in late February that Apple hit my upside price target and I was subsequently burned at the stake for saying the risk/reward on the long side was no longer optimal. In late March, it still hadn’t gone anywhere, so I used it in my post where I discussed how I outline price targets, saying once again that it was dead money. Now, several months later, it seems the noise is louder than ever as Apple broke down below its Feb-July range and 200 day moving average. So what does it all mean? Is Apple going to zero? Is this a shakeout before another big rip higher? Nobody knows, but I’m going to try to offer some unbiased analysis on it by treating it as any other symbol I look at and not “the greatest company on God’s green earth.” Also, just because I got it right in Apple once doesn’t mean I’ll get it right this time, but you and I already knew that.

From a structural perspective, price met its weekly objective near 129 at the 161.8% extension of the ’11 correction in late February. From there, we consolidated and are now seeing this range resolve to the downside, breaking through the uptrend line from the ’08 lows. Additionally, momentum did not confirm the August 2014 breakout and subsequent move to new highs. On a relative basis, Apple has lagged the S&P 500 considerably after running into resistance at the old highs and is now breaking its accelerated uptrend line there as well. The 200 week simple moving average is indeed rising, signaling that the long term trend is still higher, but that doesn’t mean we can ignore some of the issues we’ve seen develop in this stock year to date.

chart

On the daily chart we can see Apple breaking down out of a two-year uptrend channel as its multi-month range resolved to the downside. A few things to notice here is that momentum is now hitting oversold conditions, putting it in a bearish range, and the slope of the 200 day simple moving average is getting flatter. Although breaking below the 200 day for the first time in 2 years does signal weakness, what is more important to me is how long it stays below the 200 day. As long as this moving average is sloping higher, it will be difficult for price to sustain any steep sell-offs. As that moving average begins to flatten out and slope lower, that’s when we can really see the downside pressure in the stock accelerate. Fow now we’ve got support at 113/105 and resistance above at 120.

chartFrom an intraday perspective, this 65 minute chart shows why many market participants are a bit frustrated with the stock as of late. Gaps galore, reversals almost daily, and just an overall choppy trade. What is evident from the downward sloping 200 period moving average is that the long term trend for this intraday time-frame is lower. This will make it hard for price to sustain rallies, and such, will serve as a headwind until it can start to flatten out and slope higher. In terms of price, we could see a bounce toward resistance at 120 given the bullish momentum divergence at the recent lows, but again, it will likely be sold given the downtrend on this time-frame.

chartThe Bottom Line: Price breaking a major uptrend line, on an absolute and relative basis, and momentum hitting new lows is not something that we like to see from a structural perspective, especially after months of consolidation. On the daily chart, the 200 day is still rising, which will make it difficult for prices to sustain any type of major decline for long, but the longer we spend below it, the more significant it becomes. The conclusion we can draw from the intraday timeframe’s downtrend is that price is slowly starting to shift in the opposite direction, which we’ve began seeing the effects of on the higher timeframes. Bulls really want to see price get back above this 120 level and bears really want the 200 day to start sloping lower so that the selling can really start to accelerate. Either way, trend changes are processes and I think what we’re seeing may be the inner-workings of a trend change in progress. Whether or not it all matters, who knows, but that’s what I’m currently watching in Apple.

As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.

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