AAPL Drops Right Before Annual ‘Shock’ Period

A bigger and better iPhone, the new iWatch and new AAPL all-time highs … Apple has a lot of good things going. But, ironically this exciting time of the year (in terms of product launches) is the most treacherous for Apple shareholders.

Autumn is an exciting time for Apple geeks, but a treacherous time for Apple (Nasdaq: AAPL) shareholders.

Product rumors are planted in the spring and ripen in the fall as rumors mature towards tangible reality. Apple fans are hoping to feel, touch and buy a big screen iPhone or even an iWatch.

Ironically the autumn excitement doesn’t spill over to AAPL shares. September 21, 2012 was the kickoff for a 45% correction and August 19, 2013 saw a 12% pullback.

The August 24 Profit Radar Report summed up Apple’s position like this: “AAPL rallied to new all-time highs. As the chart shows, AAPL is just above green trend line support and just below red trend line resistance. AAPL seasonality points higher for another few weeks before the biggest seasonal weak spot of the year (AAPL topped on Sep. 22, 2012 at 705, split-adjusted). In short, the path of least resistance is up, as long as AAPL doesn’t close below 100. Danger will rise in mid-September.”

A detailed full-year AAPL seasonality chart is available here.

The chart below shows the various trend lines and support/resistance levels mentioned.

AAPL sliced below 100 on Thursday. Support around 100 has now become resistance. Green trend line support is at 97.

Based on seasonality, risk is rising and the path of least resistance is down as long as trade remains below 100 – 101.

Apple’s ‘bad Thursday’ spilled over to the Nasdaq-100 as the PowerShares QQQ ETF (Nasdaq: QQQ) painted a big red candle.

Thus far, QQQ remains above support at 99. A close below 99 may elicit more selling.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

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3 Reasons Why Apple is a Buy — and 2 Reason Why Not

After 18 months in the bear market abyss, Apple is back in vogue again. A rally near the prior pre-split all-time high at 705 has ignited many bullish AAPL calls. Is now a good time to buy Apple (AAPL)?

Apple is within striking distance of its 2012 all-time high (100.72, split adjusted) and iWatch rumors are stoking investors’ imagination.

Is Apple (Nasdaq: AAPL) a buy?

Here are 3 reasons why Apple should move higher and one reason why not.

Time to Buy: Apple is Cheap

Compared to the S&P 500, AAPL is cheap. AAPL is still trading 4% below its September 2012 all-time high.

The S&P 500 is 35% higher today than it was in September 2012 (see S&P 500 / AAPL chart below).

Apple’s P/E (based on forward earnings) is only 13, compared to 15 for the S&P 500.

Time to Buy: Apple’s Got its Mojo Back

After an 18-month, 45% bear market, Apple is catching more positive spotlight (again). Investors and the media are excited about the anticipated release of the iWatch and iPhone 6.

Time to Wait: Overhead Resistance Could Stifle Rally

The all-time high around $100 is an obvious hurdle. Trying to run through a hurdle can be painful. It may make sense to wait until the hurdle is overcome and then use it as a stop-loss level.

Time to Sell: Apple is Hot, too Hot for its own Good

The Apple buy signal is not a hidden secret. Here are just a few headlines from Monday:

  • CNBC: “This chart says Apple’s setting up for a huge move higher”
  • Nasdaq: “Why investors should own Apple now”
  • TheStreet.com: “Why Apple Stock remains a ‘buy’ at the Street”

The last time the media took a bold stand was in May, when it persistently proclaimed a market crash or correction (view a fascinating tale of recent ‘media bloopers’ here).

Time to (almost) Buy: Seasonality

The Profit Radar Report produces hand-crafted seasonality charts for many major indexes. An Apple seasonality chart was made available in 2012, since AAPL accounted for over 20% of the Nasdaq 100 (Nasdaq: QQQ) and over 5% of the S&P 500 (NYSEArca: SPY).

The seasonality chart projected a seasonal high on September 16. AAPL’s all-time high at 705 (pre-split) occurred on September 22.

The seasonality chart also projected a seasonal low in mid-April.

A complimentary look at the full Apple seasonality chart and what’s next for Apple is available here:

AAPL Seasonality Chart

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

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.

Technology Investing for Beginners – You can’t Lose Money with Apple Math

I got this piece of “Apple Hot News” in my inbox yesterday: “Apple today announced that pre-orders of its iPhone 5 topped two million in just 24 hours, more than double the previous record of one million held by iPhone 4S. Demand for iPhone 5 exceeds the initial supply, and while the majority of pre-orders will be delivered to customers on September 21, many are scheduled to be delivered in October.”

What’s the profit margin on 2 million iPhones? Apple doesn’t reveal profit margins, but Reuters got hold of a document filed in Apple’s patent battle against Samsung.

According to this document, Apple’s gross margin for U.S. iPhone sales between April 2010 and March 2012 ranged from 49 – 58%. The iPhone 5 sells for $199 – $399 (depending on built in storage).

Let’s calculate a 58% profit margin on 2 million iPhones sold for $299. The result is $347 million. Since last Thursday’s unveiling of the new iPhone 5, Apple (AAPL) shares have risen 3.5%. This means that Apple’s market cap increased by some $24 billion.

A $24 billion increase based on the news of 2 million pre-orders worth about $347 in gross profit doesn’t make sense.

In fact, common sense and seasonality suggests that Apple is soon due for a reality check (a. k. a. lower prices). Since Apple is the MVP of the technology sector, it’s likely that the Nasdaq QQQ ETF (QQQ) and SPDR Technology ETF (XLK) will follow Apple’s direction.

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.