NEW YORK (TheStreet) -- We began the week with a ValuEngine Valuation Warning with more than 65% of all stocks overvalued, with the Dow Industrial Average above 14,000, and with the yield on the U.S Treasury 30-year bond approaching 3.25%. This negative fundamental backdrop did not include Apple (AAPL), which has been undervalued for several weeks now.
Even with a down market Monday, all major equity averages except the Nasdaq 100 Index were overbought on their weekly charts with 12x3x3 weekly stochastic readings between 83.29 for the Nasdaq and 92.31 for the Dow transports. The Nasdaq 100 has a stochastic reading rising at 77.76, which is still below the 80.00 overbought threshold. While the markets became overbought, the weekly stochastic reading for Apple was extremely oversold with a reading well below 20.00 at 12.89.
With overvalued fundamentals and overbought technicals the market reality, my suggested investment strategy is to book profits and raise cash on strength to risky levels, not what the crowds on Wall Street are touting, which is stocks are cheap and to buy pullbacks.
It seems that whenever stocks are overvalued and overbought and at or near all-time highs investors want in when they should be booking profits. And vice-versa, whenever stocks are undervalued and oversold investors want out. Buying high and selling lows seems to happen at every market high and at every market low, including at the March 2009 lows.
The anomaly of Apple, the proverbial market leader to the upside, is that this stock has become a market drag. This leads to my conclusion that this undervalued and oversold stock must blossom for the stock market rally to continue. I last covered Apple on Feb. 5 in Bobbing for Apple, Amazon and Google Shares, where I showed $421.05 as my annual value level a semiannual pivot at $470.21 and my annual risky level at $510.63. This morning Apple is blossoming above its semiannual pivot at $470.21 in pre-market trading on the news announced Thursday afternoon that the company will trim its cash hoard by $45 billion over the next three years, including special dividends.
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