Apple and IBM Remain Must-See Charts

NEW YORK (TheStreet) -- When fundamental analysts say that no one should look at a price chart of a stock, I argue that their opinion is like driving 70 miles an hour on the interstate in a dense fog -- you will crash!

What fundamental analysts don't realize that when they expect P/E multiple expansion they are predicting market momentum for a stock. I say P/E ratios are worthless in evaluating a stock. If you are worried about P/E ratios that are way to high you missed out on today's momentum stocks such as Amazon.com (AMZN) with its 12-month forward earnings per share of 179.04, or Netflix (NFLX) with a P/E of 95.15, or Tesla Motors (TSLA) with a P/E of 112.88.

A much better discipline in analyzing a stock is to look at the past price action on daily and weekly charts as price history sets patterns that can predict future price movement regardless of P/E ratio.

My "Crunching the Numbers" approach uses daily and weekly charts and proprietary analytics I developed in the fourth quarter of 1987, after the stock market crash. My objective was to find a methodology that results in the fewest false signals.

To review, on daily bar charts I use 21-day, 50-day and 200-day simple moving averages where I consider the 200-day as the "reversion to the mean" over a rolling 12-month horizon. On weekly charts I use a five-week modified moving average and a 200-week SMA as a longer-term "reversion to the mean" over a rolling three- to five-year horizon. Both charts have a momentum study called slow stochastics. The most important is the 12x3x3 weekly slow stochastic which scales 00.00 to 100.00. A reading below 20.00 is oversold and a reading above 80.00 is overbought. A rising stochastic is positive while a declining stochastic is negative.

In addition, I developed my own proprietary analytics that crunches the last nine closes in five time horizons; weekly (W), monthly (M), quarterly (Q), semiannual (S) and annual (A) on the theory that nine years of closes are enough to anticipate the market reaction to all possible bullish or bearish events for a stock, index, bond yield, commodity or foreign exchange combo.

Back on Jan. 24, 2014 I wrote Apple and IBM Have Must-See Charts and now I provide updated analysis for both of these stocks.

International Business Machines (IBM) ($186.20 vs $182.25 on Jan. 22) traded as high as $190.81 on Jan. 17, which was a test of its 200-day SMA. The stock then traded as low as $172.19 on Feb. 5, which was a new 52-week low. Since then the stock rebounded to as high as $188.92 on March 7, which is above its 200-day SMA. The daily chart clearly shows the importance of the 200-day SMA for IBM now at $186.74. The stock is above its 21-day and 50-day SMAs at $184.39 and $183.22.

Courtesy of MetaStock Xenith

Courtesy of MetaStock Xenith

The weekly chart shows that IBM has tested or crossed its 200-week SMA 12 times over the past 20 years. The 200-week SMA is now at $178.34 that has held so far in 2014. The weekly chart is now positive with the five-week modified moving average at $184.07.

Monthly and annual value levels are $176.88 and $170.81 with quarterly and annual risky levels at $209.00 and $210.61.

Apple (AAPL) ($536.6 vs. $551.51 on Jan. 22) traded as low as $493.55 on Jan. 31, then rebounded to $551.19 on Feb. 18. The stock has been above its 200-day SMA since Sept. 17 with this moving average a key support at $497.06. The stock is on the cusp of its 21-day and 50-day SMAs at $532.24 and $533.26.

Courtesy of MetaStock Xenith

Courtesy of MetaStock Xenith

The weekly chart for Apple shifts to positive given a close this week above its five-week MMA at $531.62 with the 200-week SMA at $441.64.

Weekly and annual value levels are $525.59 and $517.05 with an annual risky level at $586.06.

At the time of publication the author held no positions in any of the stocks mentioned.

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

Richard Suttmeier is the chief market strategist at ValuEngine.com.

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