Apple (AAPL) - Get Report will always be a core portfolio holding in most investors' portfolios. There have been times to buy weakness to value levels or its "reversion to the mean" or 200-day simple moving average. There are times to book profits on strength to risky levels and this time has come with my quarterly pivot at $221.65 and monthly risky level at $227.53.
This morning Goldman Sachs cut their price target on Apple to $165 from $187 on concerns that the free trial offering on Apple TV+ will hurt its bottom line. My reason to book profits begins with an elevated P/E ratio of 18.47 and puny dividend of 1.42%, according to Macrotrends. Do you remember when Apple's P/E was between 10.00 and 12.00?
Back on May 13, I wrote, "Buy Apple on China Trade Weakness" and my buy level was tested at $182.85. Today my buy zone is between its annual and semiannual value levels at $182.85 and $178.71, respectively. My sell zone is between its quarterly pivot at $221.65 and its monthly risky level at $227.53.
Apple closed Thursday at $223.09 up 41.4% year to date and in bull market territory 57.1% above its Jan. 3 low of $142.00. Longer term, Apple is consolidating a bear market decline of 39% from its all-time intraday high of $233.47 set on Oct. 3, 2018 to its Jan. 3 low.
Apple has a winning streak of beating earnings-per-share estimates in 13 consecutive quarters. On April 30, the company beat on earnings and traded as high as $215.31 on May 1. Then came the May decline on negative China trade news. I wrote my buy recommendation on May 13, with a buy level of $182.85, which was first tested on May 20. The stock did not bottom until trading as low as $170.27 on June 3.
As I said on May 13, Apple remains a core portfolio investment, and since the stock is so actively traded, short-term trading opportunities should also be considered.
The Daily Chart for Apple
Courtesy of Refinitiv XENITH
The daily chart for Apple shows that a "golden cross" occurred on May 8, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices would follow. This signal did not work initially, but the close above the 200-day SMA at $190.45 on June 7 put this positive signal back into play. The close of $157.74 on Dec. 31 was input to my proprietary analytics and its annual pivot remains at $182.85. The semiannual value level for the second half of 2019 is $178.71. The third quarter risky level is now a pivot at $221.65. Its monthly risky level for Sept. is $227.53. The 50-day and 200-day SMAs are now at $207.05 and $187.12, respectively.
The Weekly Chart for Apple
Courtesy of Refinitiv XENITH
The weekly chart for Apple is positive with the stock above its five-week modified moving average of $208.80. The stock is well above its 200-week simple moving average or "reversion to the mean" at $154.35. Notice how the "reversion to the mean" provided buying opportunities between the weeks of Jan. 29, 2016 and July 1, 2016, when the average was $93.31 and again during the week of Jan. 4, when the average was $142.00, the exact low. The 12x3x3 weekly slow stochastic reading is projected to rise to 67.51 this week, up from 66.44 on Sept. 6. As 2019 began, this reading was 7.54, well below 10.00, which made the stock technically "too cheap to ignore." On May 3, this reading was 92.52, above the 90.00 threshold, as its "inflating parabolic bubble," and was followed by weakness to the June 3 low.
Trading Strategy: Buy weakness to the annual and semiannual pivots at $182.85 and $178.71, respectively, and reduce holdings to the quarterly and monthly risky levels at $221.65 and $227.53, respectively.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play.
The weekly level changes each week. The monthly level changes at the end of each month, the latest on Aug. 30. The quarterly level was changed at the end of June.
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. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.