Long-Term Investor in Apple? Have a Look at This

Apple has been on fire, rallying more than 100% from the January lows. When can investors buy the stock?
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Apple  (AAPL) - Get Report shares continue to blaze higher. While Friday’s gain of 75 basis points may not seem like much, it was enough to send the stock to yet another all-time high.

It’s hard to believe the journey that Apple has taken. In 2018, the stock rode a trough-to-peak gain of 56.5%, which began in February and ended in October. It was followed by a decline of roughly 40%, which came to an end on Jan. 3, 2019.

Shares fell about 9% that day after the company warned investors of its upcoming earnings results. Now raise your hand if you predicted that was the bottom for the stock Go ahead and raise both hands if you predicted shares would rally 100% before the end of the calendar year from that point.

If we did this across the entire market, very few participants - if any - would have both hands in the air. Given this unexpected strength, Apple is a perfect pick as Real Money’s Stock of the Day.

On Thursday, we looked at how to trade Apple stock using the daily chart. Let’s look at the weekly chart below to get a better idea of its longer-term trends.

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Trading Apple Stock

Weekly chart of Apple stock.

Weekly chart of Apple stock.

Above is an eight-year weekly chart for Apple stock. It shows that, among other things, this stock has been in a very long-term uptrend.

Each large dip down to the 200-week moving average has been bought, and in fact Apple has not (on a weekly basis) closed below this mark during that entire span. Conveniently, we were also able to apply an uptrend mark (blue line) to the lows.

So the easy answer for long-term investors? Buy on massive dips down to this area. Of course, the drawback here is that the stock is about $130 above these marks now and shares can rally quite some distance before testing back into this area. 

Tough as it may be to miss out on further upside, long-term bulls at least need to consider waiting for a deeper pullback. There are multiple reasons why waiting is now prudent.

Apple shares trade at 24 times earnings. While not egregious, this is Apple’s highest P/E value in the last decade. The stock sports a relative strength index reading of 86, which suggests it is overbought and at the very least needs to rest. 

Currently, AAPL stock is up 89% in 2019 and it will be its best year since the 2009 rebound. Since 2012, Apple has had three annual returns in excess of 31%. The best annual return in the following year? Just 5.4%, which came in 2013. The other two years were negative returns, (although only single-digit declines).

It’s also worth mentioning that following each of the years when Apple gained more than 31% the stock suffered a 30% peak-to-tough decline in the following year.

A 30% correction from current levels would knock Apple back down to $204. I’m not saying that will happen, but the data still favors waiting for a better price at this point.

The earliest dip-buyers will likely step in on a test of the 10-week moving average, which is currently 8.5% below current prices. Ultimately, a retest of the $230 breakout level could be a great entry opportunity. But even just a 15% decline from here, sending Apple toward $250, would be a better risk/reward for buyers. 

A scenario could exist where bulls take Apple up to $300 and possibly higher into earnings. But Apple stock is up more than 50% from the October lows when shares were trading at less than $200 apiece. If investors took a pass at $190 then, they should probably pass at $290 right now - at least for the time being.