Is it Time to Buy Apple Again?

Instead of becoming the first 1 trillion dollar company, Apple’s market cap shrunk by more than $200 billion. Apple today is almost 30% cheaper than it was just a couple months ago. Is now the time to buy?

28 – If you follow Apple shares you probably know what this number stands for. 28% is how much AAPL dropped from September 21 to November 16.

That’s a terrible situation if you own AAPL, but great news if you are a bargain buyer – AAPL is now almost 30% cheaper than it was 40 trading days ago. Does that mean it’s time to buy AAPL?

The answer depends on your time horizon.

AAPL Long-Term Outlook

A November 15 CNBC article titled “Apple stock hit by panic selling:  Someone yelled fire” (that’s good for the short-term, more about that below) pointed out that more than 800 hedge funds and mutual funds counted Apple among their top ten holdings at the end of the third quarter.

“Apple was the classic case of no more incremental buyers of the stocks. No matter how bullish a story, you need new buyers of the stock or it will go down.”

Well no kidding Sherlock, that information would have been useful a few weeks ago.

In a March 16 research note to subscribers on record, I published the following research:

“About one-third of all U.S. stock mutual funds own Apple. One in five hedge fund managers holds Apple amoung their 10 largest bullish positions. Only 2 of 54 analysts have a sell rating on Apple.

40 dividend focused funds own Apple. Apple is the single biggest holding of Goldman Sachs’ U.S. Equity Dividend and Premium Fund. Yet Apple has never paid a dividend. 50 small and midcap funds own Apple. Yet Apple is the largest company in the world.

If and when Apple sneezes, the market will get a cold. A 20% drop in Apple shares would zap over $100 billion of liquidity and likely increase mutual fund redemptions and emphasize the need for cash. Apple shares and other high flying stocks will have to be sold to raise cash and the market will drop further.”

The financial market was more than just saturated with Apple stock, it gorged on AAPL and I doubt that – over the long-term – a 28% drop will cure the saturation hangover.

The September 28 Profit Radar Report issued one of the most contrarian recommendations for individual stocks ever:

“Aggressive investors may short Apple (or buy puts or sell calls) above 700 or with a close below 660. Obviously, there is no short Apple ETF and if you don’t have a margin account set up, you may consider using the Short QQQ ProShares (PSQ), which aims to deliver the inverse performance of the Nasdaq-100 (Apple accounts for 20% of the Nasdaq-100).”

AAPL Short-Term Outlook

After falling as low as 506 on Friday, AAPL staged a nice reversal and closed at 527. In the process it created a green reversal candle against a small bullish RSI divergence (price made a new low, RSI did not).

A similar constellation happened on November 9, but prices continued to fall lower. The difference between Friday’s (November 16) and the November 9 green candle is volume. Friday saw the most shares change hands since March 13.

In short, AAPL is showing signs of life and prices are likely to move higher, but I think an even better opportunity lies ahead in the near future.

The Profit Radar Report analyses the markets and the forces that drive the market. Such forces include technicals, sentiment, seasonality, and recently the performance of Apple. Sunday’s report includes a multi-month forecast for the S&P 500.