NEW YORK (TheStreet) - When Apple (AAPL - Get Report) traded above $700 back on Sept. 9, 2012, it had a buy rating, according to ValuEngine.com, but the very next day was downgraded to hold. To me this was a warning that Apple shares had significant downside risk over the months ahead, despite the analysts' call for the stock to reach $1,000 a share.
Apple's turnover from above $700 a share broke below its 200-day simple moving average on Nov. 2, 2012, which warned of additional downside risk into 2013. The weekly chart profile was also confirming this risk with a negative chart.
On weakness into March 2013, to a low of $385.10 on April 19, Apple was upgraded to buy from hold. This weakness prompted me to screen the ValuEngine data base to find the best value stock among the S&P 500. On March 14, I wrote, Apple Wins the Search for Value. The stock's weekly chart profile showed an extremely oversold condition with a 12x3x3 weekly stochastic reading of just 10.39 on a scale of 00.00 to 100.00 where a reading below 20.00 was oversold. Apple was 23.9% undervalued and at $428.35 the stock had already tested my annual pivot at $421.05 after breaking below a second annual pivot at $510.64 on Jan. 14. Apple maintained its buy rating down to its April 19 low and beyond.
On June 20, with the stock at $423.00 I wrote, Apple Can Grow to $500 in the Second Half of 2013. With Apple back above my annual pivot at $421.05 there was a clear possibility that the stock would return to my higher annual pivot at $510.64. I stood by this call even as the stock traded to a secondary low of $388.87 on June 28. At this low Apple tested and held its 200-week simple moving average.
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Apple closed at $418.99 on July 23 and then in afterhours trading that day reported better than expected second quarter earnings. The stock still had a buy rating and was 6.8% undervalued maintaining the status of a value stock. The following morning Apple began its transition back to being a momentum stock with a gap open above my annual pivot at $421.05 and would stay above that level for the remainder of the year.
Apple lost its value status with a downgrade to hold on July 30 and the momentum status solidified with a gap above its 200-day SMA at $468.05 on Aug. 13. With the stock firmly above $421.05 there was an 85% chance of returning the second annual pivot at $510.64, which was first tested on Aug. 19 after billionaire investor Carl Icahn disclosed a $1.5 billion stake in the company.