NEW YORK (TheStreet) - When Apple (AAPL) traded above $700 back on Sept. 9, 2012, it had a buy rating, according to ValuEngine.com, but the very next day was downgraded to hold. To me this was a warning that Apple shares had significant downside risk over the months ahead, despite the analysts' call for the stock to reach $1,000 a share.
Apple's turnover from above $700 a share broke below its 200-day simple moving average on Nov. 2, 2012, which warned of additional downside risk into 2013. The weekly chart profile was also confirming this risk with a negative chart.
On weakness into March 2013, to a low of $385.10 on April 19, Apple was upgraded to buy from hold. This weakness prompted me to screen the ValuEngine data base to find the best value stock among the S&P 500. On March 14, I wrote, Apple Wins the Search for Value. The stock's weekly chart profile showed an extremely oversold condition with a 12x3x3 weekly stochastic reading of just 10.39 on a scale of 00.00 to 100.00 where a reading below 20.00 was oversold. Apple was 23.9% undervalued and at $428.35 the stock had already tested my annual pivot at $421.05 after breaking below a second annual pivot at $510.64 on Jan. 14. Apple maintained its buy rating down to its April 19 low and beyond.
On June 20, with the stock at $423.00 I wrote, Apple Can Grow to $500 in the Second Half of 2013. With Apple back above my annual pivot at $421.05 there was a clear possibility that the stock would return to my higher annual pivot at $510.64. I stood by this call even as the stock traded to a secondary low of $388.87 on June 28. At this low Apple tested and held its 200-week simple moving average.
Apple closed at $418.99 on July 23 and then in afterhours trading that day reported better than expected second quarter earnings. The stock still had a buy rating and was 6.8% undervalued maintaining the status of a value stock. The following morning Apple began its transition back to being a momentum stock with a gap open above my annual pivot at $421.05 and would stay above that level for the remainder of the year.
Apple lost its value status with a downgrade to hold on July 30 and the momentum status solidified with a gap above its 200-day SMA at $468.05 on Aug. 13. With the stock firmly above $421.05 there was an 85% chance of returning the second annual pivot at $510.64, which was first tested on Aug. 19 after billionaire investor Carl Icahn disclosed a $1.5 billion stake in the company.
After some sideways to down trading to $447.22 on Sept. 16 Apple was back below the 200-day SMA for two sessions and this hiccup resulted in a ValuEngine upgrade to buy. The stock had both a buy rating and momentum to rally back to $510.64 and the stock has been above this pivot since Oct. 23.
As Apple continued its momentum run it totally lost its value characteristics and was downgrade to hold on the way to an intra-day high at $575.14 on Dec. 5.
Apple closed Friday at $560.09 with a hold rating, is 17.4% overvalued with a gain of 8.7% over the last 12 months and is well above its 200-day SMA at $472.79. The weekly chart profile is positive but overbought with its five-week modified moving average at $540.76 and 200-week SMA at $425.65. On Jan. 2, I will have new monthly, quarterly, semiannual and quarterly levels but this week's risky level is $569.99.
Apple's changes in ratings and valuations, changes in chart patterns and the power of my pivots, clearly show how all three components of my methodology help provide buy-and-trade opportunities. Not only can you capture portions of a stock's trend, but also capture some of a stock's day-to-day volatility using good-until-cancelled GTC limit orders to buy weakness to value levels and to sell strength to risky levels.
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.