Apple reported strong earnings on April 30 and the stock responded by setting its 2019 intraday high of $215.31 on May 1. Since then, the stock market began to slip lower on the possibility that the China trade talks would stall without an agreement and that was confirmed on Friday, May 10.
On Monday, May 13, China announced tariffs on $60 billion of U.S. goods effective on June 1, which includes iPhones. Shares of Apple are now in correction territory. From its May 1 high to its annual value level, the decline will extend to 15%. This makes the Apple cheap enough to buy. The stock has a P/E ratio of 16.58 with a dividend yield of 1.56%, according to Macrotrends. Apple is increasing its share buyback program and announced a dividend increase.
Apple is no longer just a seller of iPhones; it's a technology company. The iPhone line of smartphones is just one of several consumer electronics they sell. The company also offers software and online services. Also hurting the stock is the decision from the U.S. Supreme Court who ruled against Apple in the APP store antitrust dispute.
In my opinion, 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 the stock is still in a 2019 bull market that is a consolidation of the fourth quarter 2018 bear market. The price bar for Monday, May 13, shows a price gap below the 50-day and 200-day simple moving averages at $194.33 and $192.50, negating a potential "golden cross." The close of $157.74 on Dec. 31 was input to my proprietary analytics and its semiannual and annual pivots remain at $168.72 and $182.85, respectively. The close of $189.95 on March 29 was an important input to my analytics and that resulted in the second-quarter pivot at $208.2, which remains in play until the end of June. The close of $200.67 on April 30 resulted in a monthly value level at $152.77.
The Weekly Chart for Apple
Courtesy of Refinitiv XENITH
The weekly chart for Apple will be negative if the close on Friday, May 17 is below its five-week modified moving average of $194.88. The stock is well above its 200-week simple moving average or "reversion to the mean" at $146.09. The 12x3x3 weekly slow stochastic reading is projected to slip to 80.63 this week down from 88.64 on May 10.
On May 3, this reading was 92.52, above the 90.00 threshold as an "inflating parabolic bubble" and this bubble is now deflating. As 2019 began, this reading was 7.54 well below 10.00, which is my indication that the stock was "too cheap to ignore."
Trading Strategy: Buy weakness to the annual and semiannual pivots at $182.85 and $168.72, respectively, and reduce holdings to the quarterly risky level at $208.26.
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 semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March and April. The quarterly level was changed at the end of March. 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.