Weekly ETF SPY: AAPL at Crossroads

The cat is out of the bag. Everyone knows that AAPL prices are no longer linked to iPhone, iPad or other iGadget sales. To the frustration of Wall Street, AAPL has developed a mind of its own. Here’s one simple trick that foreshadowed all turns since November 2012.

Is Apple’s decline over? Much has been written about Apple’s quick demise from darling of the masses to giant under achiever.

The good news is that AAPL shares recovered a bit recently. The bad news is that further gains are a must to break the down trend. Here’s why:

Charted below is AAPL on a log scale along with RSI (Relative Strength Index) and some powerful support/resistance levels.

Apple’s decline from the September high has been confined to a well-defined parallel trend channel.

Every instance Apple hit that channel is marked with a gray circle. There are six circles, so AAPL must consider this channel to be important.

This week AAPL touched the upper channel line for three consecutive days but has so far failed to break above it.

At the same time, RSI has come back to test resistance at 51, a level that rebuffed all prior rallies since October.

There is a silver lining for AAPL bulls. On the regular (non log scale) chart, AAPL already moved above its parallel channel. Nevertheless, the down trend deserves the benefit of the doubt as long as AAPL fails to bust through price and RSI resistance.

Regardless of your bias, what AAPL reaction to current resistance will likely set the directional trend for the coming weeks. The trend channel can be used to find low-risk entry points and to manage risk.

The other shown support/resistance levels may come into play if AAPL is able to break out if its current ‘resistance prison.’

The lower ascending red trend line goes back to the year 2000. The dashed gray channel goes back to May 2010 and the upper ascending red trend line originates in 2003.

All those long-term support resistance levels have been helpful in anticipating important turns, particularly the all-time high above 700.

The September 12, 2012 Profit Radar Report featured this (at the time outrageous) trade recommendation: “Aggressive investors may short Apple (or buy puts or sell calls) above 700 or with a close below 660.

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From Boom to Bust – Is Apple All Downhill from Here?

Apple has gone from the first ever 1-trillion dollar baby to stock investors can’t sell fast enough. Is Apple’s sell off overdone? Here’s one key point and a piece of technical analysis that may well hold the answer.

Downhill, up the creek, or to new highs? What’s next for Apple?

The iPad is selling like hotcakes, the iPad Mini tops many holiday wish lists, and Apple is projected to sell 53 million iPhones this quarter, a 40+% increase from Apple’s previous one-quarter record of 37 million.

Considering those numbers, is Apple’s recent 28% drop overdone?

That’s the wrong question. A better question is whether Apple’s run to its $705 all-time high was simply overdone?

The Disconnect between Sales an AAPL Shares

A September 18 article here on iSPYETF addressed an obvious but ignored math flaw in AAPL shares three days before the stocks all-time high. Here’s what I mean:

On September 13, Apple unveiled the new iPhone.

On September 17, Apple sent out an e-mail announcing that iPhone 5 pre-orders topped two million.

From September 13 – 17, AAPL soared 3.5%. Did this move make sense? Let’s calculate:

The profit margin on the iPhone is about 58% (according to a document obtained by Reuters). The average price is $299. The profit on 2 million iPhones sold at $299 is $347 million.

The 3.5% September 13 – 17 rally increased Apple’s market cap by some $24 billion.

Did anything material change in Apple’s fundamentals to validate this rally? No. The same article warned that Apple is due for a reality check, which will drag down the Nasdaq and technology sector.

So is Apple’s decline overdone?

Flawed Math is No Indicator

We surely won’t get the answer from Apple’s (holiday) sales. The math didn’t work on the up side and it won’t work on the down side.

Three factors that likely contributed to the most recent leg down are:

1) Profit taking before a seemingly inevitable tax increase.
2) The psychological effect of the death cross (although it’s not always as bearish as it sounds).
3) The increase of margin requirements by some clearing firms.

The most important factor is simply that the higher a stock rallies, the further it can fall. Apple’s run from below 20 in 2004 to above 700 in 2012 was just “too much of a good thing.”

Despite the set back, AAPL is still up 33% YTD and Apple’s market cap still $100 billion bigger than its closest market cap competitor.

Short-term Technical Outlook

Technical analysis of Apple and the AAPL chart warned of a top above 700 and a bounce of the November 16 low at 506 (summary of my Apple analysis can be found here).

The current chart is somewhat inconclusive, but selling has been heavy (see chart) and it seems to me that Apple is heading for a new low, perhaps around 480 – 490. Nevertheless, the down side seems limited and a new low unconfirmed by a new RSI low would create a bullish divergence and possibly prove as a springboard for a more sustainable rally into Q1 2013 (even without new low AAPL is likely to rally in Q1 2013).

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.