The stock chart on Wednesday suffered a bearish open this morning. Apple gapped below its annual pivot at $253.68 and below its 200-day simple moving average at $250.62.
Here’s the link to the coverage of the Bank of America price cut as reported by TheStreet.com.
The technical problem is that my proprietary analytics do not show a value level at which to buy the stock on weakness.
This indicates that the stock could decline to a retest of its March 23 low of $212.61.
Longer term, its 200-week simple moving average, or reversion to the mean, at $178.86 is at risk.
The possibility should not be ignored, as the Cupertino, Calif., tech giant's stock tested this average at its January 2019 low of $142. In May through June 2016, this moving average was tested at $93.31.
Back on Jan. 29 I wrote “Apple Tests Its Earnings Risky Level – Here’s the Trade” where I recommended booking profits with the stock above $327, given a weekly risky level at $327.91.
I saw downside risk to its annual value level at $253.68, and now the stock is below this pivot.
The stock ended the first quarter at $254.29, down 13% year to date and in bear-market territory 22% below its all-time intraday high of $327.85 set on Jan. 29. This followed the earnings report of Jan. 28.
The stock traded as low as $212.81 on March 23 and is up 20% since then.
Shares of Apple had a p/e multiple of almost 27 with a dividend of 0.97% at its high, according to Macrotrends. Today the p/e multiple is just above 20 with a dividend yield of 1.2%. After the crash of 2008 the p/e was 12.24.
The Daily Chart for Apple
Courtesy of Refinitiv XENITH
Apple's daily chart shows that the stock had been above a golden cross since May 8, when the 50-day simple moving average rose above the 200-day simple moving average. Such a move indicates that higher prices will follow.
As this occurred, the stock could have been bought at its 200-day simple moving average on May 10, $192.53.
This buy signal tracked the stock to its all-time intraday high of $327.85 on Jan. 29. The high of $327.22 on Feb. 12 can be considered a double-top.
While cascading lower, shares of Apple fell below their 50-day simple moving average on Feb. 24. The stock then tested its semiannual pivot at $262.02 on Feb. 28.
The annual pivot at $253.68 was a magnet between March 12 and March 31. The April 1 price gap lower was below this annual level and its 200-day SMA at $250.62.
The second-quarter risky level is $272.81, with its monthly risky level for April at $305.59.
The Weekly Chart for Apple
Courtesy of Refinitiv XENITH
The weekly chart for Apple is negative, with the stock below its five-week modified moving average of $269.23.
The stock is well above its 200-week simple moving average, or reversion to the mean, at $178.86, which is the downside risk in the second quarter.
The 12x3x3 weekly slow stochastic reading is projected to decline to 33.71 this week from 40.23 on March 27.
Note that at the high this reading was well above 90, putting the stock in an inflating parabolic bubble formation. This was followed by a bear-market decline.
Trading Strategy: Reduce holdings on strength to its annual and semiannual pivots at $253.68 and $262.02, respectively. Buy weakness to the March 23 low of $212.61 and to its 200-week SMA at $178.86.
How to use my value levels and risky levels:
The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.
Second quarter 2020 and monthly levels for April were established based upon the March 31 closes.
New weekly levels are calculated after the end of each week.
New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.
To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.
A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.
A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.