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Apple Wakes Up to a Downgrade

NEW YORK ( TheStreet) -- In a "buy and trade" strategy you have a reason to go long a stock, such as a buy rating or projected strong price momentum.

In the case of the big-three tech-related names, each were rated buy according to ValuEngine when I profiled them for a Thanksgiving and Santa Claus Rally trading opportunity on Nov. 21 in Santa Claus Rally Eyed for Online Leaders Apple, Amazon and Google. These stocks have also been referenced for "buy and trade" strategies in earlier posts.

In a "buy and trade" discipline it's important to make investment strategy adjustments when the reasons for trading these, or any stock, changes. One of the two reasons for trading these three stocks on Nov. 21 was their buy ratings according to ValuEngine. Now that all three are rated hold the trade becomes based upon MOJO only.

If you decide to stay long these stocks based upon momentum at least consider cutting the exposures in half. You should still use value levels, risky levels and the key moving averages to adjust positions.

On Monday I wrote Amazon, Google Wake Up To Downgrades and thus the positions should have been adjusted.

Amazon (AMZN - Get Report) ($243.62 vs. $233.78 on Nov. 21) could have been reduced on strength to the 50-day simple moving average at $243.15 on Monday as the stock opened well above my annual pivot at $236.23. My quarterly risky level remains at $263.71. The trade has been from the 200-day SMA at $219.57 on Nov. 15 to its 50-day at $243.15 for a gain of 10.7%.

Google Inc (GOOG - Get Report) ($661.15 vs. $669.97 on Nov. 21) did not provide a favorable exit level in Monday's trade. My weekly value level is $624.04 with my monthly risky level at $679.57 and quarterly risky level at $713.85. The trade has been from the 200-day SMA at $638.41 on Nov. 16 to Monday's open at $666.44 for a gain of 4.4%.

Apple (AAPL - Get Report) ($589.53 vs $560.91 on Nov. 21) rallied 18 points on Monday and outran its projected 12-month gain of 5.07%. This morning the ValuEngine Forecast Model has reduced this projection to 4.75% and hence the downgrade to a hold rating from buy. As a result of Monday's rally Apple's 12-month forward price-to-earnings ratio from Wall Street analysts rose to 11.19 from 10.85.

Two week's ago, on Nov. 14, the "buy and trade" strategy began from that week's pivot at $538.56. If the stock opens unchanged the gain since Nov. 14 is 9.5%. The price at which to reduce this position on strength is to the 200-day simple moving average at $598.38.

The daily chart for Apple is positive with Monday's close above the 21-day simple moving average at $568.31. This week's value level is $508.60 with my semiannual value level at $481.73, the 200-day simple moving average at $598.38 and quarterly risky level at $674.21.

Chart Courtesy of Thomson/Reuters

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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