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Want to Buy Apple Without Chasing? – Some Possible Entry Points (AAPL, SPY, QQQ)

February 15, 2012 Leave a comment

Since blowing out earnings expectations on January 24, Apple, Inc. (AAPL) has been on a tear, bringing the S&P 500 (SPY) and NASDAQ (QQQ) along for the ride. From the pre-earnings closing price of $420.50 on January 24th, to today’s intra-day high of $526.29, Apple had gained a stunning 25% in just 16 trading days.

Unfortunately, this quick run up has made it hard to begin a long position in the stock because of the complete lack of pullbacks other than the 50% long Fibonacci extension at $445 that traded during the first day after earnings (shown Here on a 90 day, hourly chart). The other issue with Apple’s recent move up past the $500 milestone is that it has attracted an enormous amount of momentum-oriented investors who have seen the move up that has already happened, and are now chasing high’s in hopes of catching some of the move. I can’t predict when the momentum will run out, but I can be reasonably sure that the momentum investors will dump the shares as quickly as they bought them once the upward trend begins to fade. Whether you are a value investor or technically-based trader, Price matters and that is why it is so important to remain calm, disciplined and patient when buying into even the highest quality of stocks.

The charts below show Apple’s 20 Year Weekly chart (logarithmic), 3 Year Daily chart (linear) and 90 Day Hourly chart and I will discuss potential entry points for each time frame. I also want to be clear before beginning that just because the safest entry points are below where Apple is currently trading, I am not at all recommending a short position and I personally would never consider it due to the high quality and debatable undervalued nature of the stock. If Apple is in trouble, the S&P 500 would likely also be in trouble and I’d much rather short SPY or by an inverse ETF.

AAPL 20 Year Weekly Chart (Logarithmic):

(Click for Larger Image)

You can see from this chart that Apple has sold off every time it ran into this resistance line going all the way back to 1994. This time might be different but it certainly warrants caution. So let’s take a look at some potentially safer entry points for longer time frame investors Here which zooms in to a 3 Year Weekly chart.  The safest play would be to wait for Apple to sell off down to the purple 50 week Simple Moving Average (SMA) which is currently at ~$379 and rising at a decent clip. For slightly move aggressive individuals, buying the 50% long at the green horizontal line at $445 or previous highs at $425 could work well and also coincide with the white 10 week SMA.

AAPL 3 Year Daily Chart (Linear):

(Click for Larger Image)

This chart demonstrates Apple’s tendency to have fast run ups, and then periods of prolonged consolidation (highlighted in grey) which offer long term investors the chance to buy on dips. Meanwhile the red declining trend lines have routinely served as a good signal to shorter term technical traders that a breakout was taking place. These breakouts have lasted between 2 and 5 months with the average duration being 2.7 months long. This most recent rally is approaching the average duration right now and has completely broken out of its 3 year rising channel that it had been trading in (shown Here). Given these indications that the stock is possibly overextended, it would be prudent to wait for a retracement into one of the 50% Fibonacci levels shown in the chart above (notice that the $445 support level is visible on both the weekly and daily charts).

AAPL 90 Day Hourly Chart:

(Click for Larger Image)

For short term technical traders, there are only really two other levels to pay attention to aside from the daily support levels (Shown by the red and dotted horizontal lines that start at the beginning of 2012). The first (and most aggressive)  entry is an extension long setup (an extension long is a Fibonacci drawn from a previous high to a new high after a significant thrusting move, as opposed to a traditional Fibonacci which is drawn from lows to high) at $490. This extension originates from the previous high set after the post-earnings gap up to the intra-day high that we hit today at $526. The next long setup is down at $479 and is just a few points away from the daily support level which could give it an extra boost. This second extension has is just the continuation of the original gap up extension long that traded the day after earnings at the $445 level.

In summary, potential buying areas on Apple are as follows (from least to most aggressive):
Weekly Entries:
50 Week SMA, $445, $425

Daily Entries:
$476, $445

Aggressive Entries:
$490, $479

Disclosure:
I am long shares of Apple, however, I did close out 1/3 of my position today to lock in profits at $498.33.

S AAPL @189.59-190.00

October 14, 2009 6 comments

green_appleThis is somewhat of a joint post between the two of us, as we have both sold Apple (AAPL) in the last week (AH, all shares@$189.59 and MB, 66% shares@$190.00) after having some discussions about the stock.

Our thought process was fairly simple and it revolved around the question: What is priced into the stock?  There is no bad news surrounding Apple right now.  Any thoughts that they, being a manufacturer of premium products, would be struck down by the recession have been quelled as they rolled out earnings numbers that almost defied belief.  The myth that without Steve Jobs the company would be a body with no head has been squashed, as they performed admirably during the health-related absence of their CEO. They continue to excite and amaze the population with relatively minor and incremental upgrades to their products, due to the strength of their existing market position and their incredible marketing abilities. The ever-persistent rumors about a tablet or touchscreen notepad-like product have reached the pinnacle as analysts expect a product arriving early next year that will energize that dormant segment like they did the music and mobile phone industries. Even beyond this, this is the belief that Apple’s innovative power will continue at the speed of Moore’s Law and that everything they do will work so well in the future as to cause network effects that will cause limitless profits.

As stated before, there seems to be no bad news priced in, but I see a few dark clouds on the horizon. Windows 7 is arriving soon, and is supposed to be the first product from Microsoft (MSFT) that can truly compete with OS X.  Apple may no longer stand to benefit from having a unworthy competitor. Additionally, Apple’s impeccable track record with nearly everything they touch means that if the much hyped tablet concept turns out to be anything other than astounding, investors could be disappointed.

At the time of this writing, Apple is within 5% below its all time, intra-day high of approximately 202.98.  That price was reached in December 2007, just before the financial crisis really took hold of the markets.  At that point, there were equally no reservations among analysts that AAPL was going to the moon. It was after that point that doubts began materializing.

Given the abundance of good news and the lack of bad catalysts, we are not calling a top on AAPL. However, until the good expectations baked into Apple’s price begin to materialize in a meaningful way we think there are other investment opportunities with better potential rates of return after considering Apple’s 100%+ run from the bottom on March 9th, 2009.

Disclosure: Michael is long AAPL, Andrew is long MSFT. Both love Apple products.