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Apple and IBM Have Must-See Charts

NEW YORK (TheStreet) -- Over the years there have been many arguments with regards to mixing fundamentals and technicals when buying and selling stocks. Discussions usually end with the fundamental analysts proclaiming "nobody can time the market," while market technicians cite all sorts methodologies to time when to buy and when to sell a stock by graphically presenting their strategy.

My methodology is quantitative using both the fundamentals according to www.ValuEngine.com and the daily and weekly charts using www.metastock.com/suttmeier. I also distill the oil and water of the mixing of fundamentals and technicals with my proprietary analytics which provide a value level at which to buy on weakness and a risky level at which to sell on strength.

On daily bar charts I use 21-day, 50-day and 200-day simple moving averages where I consider the 200-day as the "reversion to the mean." On weekly charts I use a five-week modified moving average and a 200-week SMA. Both charts have a momentum study called slow stochastics. The most important is the 12x3x3 weekly slow stochastic which scales 00.00 to 100.00. A reading below 20.00 is oversold and a reading above 80.00 is overbought. A rising stochastic is positive while a declining stochastic is negative.

International Business Machines (IBM - Get Report) ($182.39) reported quarterly results afterhours Tuesday and revenue declined more than the expected 5.5%. Stock declined from $188.43 at Tuesday's close to a day's low of $179.67 on Wednesday. IBM remains buy-rated is 9.9% undervalued with a loss of 7.1% over the last 12 months.

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Courtesy of MetaStock Xenith

The daily chart shows that IBM has been below its 200-day SMA (green line) since June 20 and going into Tuesday's earnings report tested its 200-day SMA at $190.49 on Monday, where traders had the option to book profits pre-earnings.

Courtesy of MetaStock Xenith

The weekly chart shows that IBM needs to end the week above its five-week MMA at $183.87 to stay positive as momentum is rising. A tradable top for IBM was confirmed shortly after the all-time high at $215.86 was set on March 14 when weekly closes were below the five-week MMA with declining stochastics. Then, shortly after testing its 200-week SMA around the mid-December low at $172.67, a tradable bottom was confirmed when weekly closes were above its five-week MMA with rising stochastics.

Apple (AAPL - Get Report) ($551.51) reports quarterly results afterhours on Monday and analysts expect the company to report earnings per share at $14.04. Apple has a buy rating is 11.7% overvalued with a gain or 9.3% over the last 12 months.

Courtesy of MetaStock Xenith

The daily chart shows Apple's descent from its all-time high at $705.07 on Sept. 21, 2012, all the way to a 52-week intraday low at $385.10 on April 19, 2013, and then its subsequent rebound. At the high several fundamental analysts raised their price targets to $1,000 per share. At ValuEngine our price target was just above $700 and the next day the stock was downgraded to hold from buy. Once the stock closed below its 200-day SMA (green line) on Nov. 2, 2012, the downside accelerated. The bottoming process began with a sideways to up pattern that eventually cleared the 200-day SMA on Aug. 13, and the high was $575.14 tested on Dec. 5.

Courtesy of MetaStock Xenith

The weekly chart for Apple shows how the 200-week SMA (green line) has provided longer term buying opportunities back in 2004, again in late-2008/early-2009 and again in early-July 2013. If the reaction to Apple's earnings is negative and the stock closes next week below its five-week MMA at $541.92 the downside risk is to its 200-day SMA at $480.95 on its daily chart, and perhaps to the 200-week SMA at $431.99 on the weekly chart.

The September 2012 all-time high was confirmed when weekly closes were below the five-week MMA with declining stochastics. Shortly after the test of its 200-week SMA a tradable bottom was confirmed by weekly closes above the five-week MMA with rising stochastics.

My annual value level is $517.05 with a monthly pivot at $549.13 and my annual risky level at $586.06. If Apple's earnings are a blow-out and the stock clears $586.06 the upside into June is to my semiannual risky levels at $657.40 and $666.94.

At the time of publication the author held no positions in any of the stocks mentioned.

Follow @Suttmeier

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

Richard Suttmeier is the chief market strategist at ValuEngine.com. He has been a professional in the U.S. Capital Markets since 1972, transferring his engineering skills to the trading and investment world.

Suttmeier has an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. He became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gives him the insights to be an expert on monetary policy, which he features in his newsletters, and market commentary.

Suttmeier's industry licenses include, Series 7 and Registered Principal (Series 24). He has been the Chief Market Strategist for ValuEngine.com since 2008 and often appears on financial TV.

Click here for details on Suttmeier's "Buy and Trade" investment strategy.

Richard Suttmeier can be reached at RSuttmeier@Gmail.com

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