- Apple Inc. still has a massive institutional holding.
- Revenues and earnings are good.
- The long term charts have aligned for an entry signal into Apple stock.
Apple (NASDAQ:AAPL) has fallen from grace. At least, that is the buzz going around. Really, that couldn't be further from the truth. If you are a true student of strategic management, you will realize how incorrect that line of thinking is. Rather than get into the nitty-gritty of how a firm operates, as a potential buyer of Apple Apple (NASDAQ:AAPL), you most likely care about whether or not the stock will increase from the level you purchased it at.
Is Apple Still A Fundamentally Solid Company?
But first, are Apple's fundamentals still solid? By that, I mean what are the long term trends in Apple's revenues and earnings?
Trend in revenues up. Check.
Trend in earnings is up. Check.
Apple Is A Key Component Of Major Market Indices
Another minute detail is to check the overall weighting of Apple within the Dow, S&P, and Nasdaq indices. Why? It will help you to see whether or not the company is still relevant. You know if the weightings are high, then institutions have a vested interest in the stock. They will not allow the stock to precipitously fall.
Currently, Apple has approximately a 10.5% weighting in the Nasdaq 100, 3.1% weighting in the S&P 500, and a 4.01% weighting in the Dow 30. The weights of Apple rank it as the top holding in both the Nasdaq and the S&P and 10th largest holding in the Dow. Hopefully, this puts some perspective that Apple is not dead like the media seems to hype.
Now comes the most important part of the analysis: when to buy Apple stock?
Should You Buy Apple Stock Now?
Take a look at the charts below. Based on my own observations, there is no need to go crazy on so many time-frames when trying to analyze a stock. What we are trying to do is stay in Apple as long as it is going up and get out when it is falling. Now this will not be perfect, but it is enough to keep you on the right side of the ebbs and flows of the market. I assume the audience I am writing for are small investors who will have the liquidity to enter and exit without disturbing the markets. Basically, you are a retail investor.
The 200 period moving average is key on all time frames. Keep it simple. If the price of Apple is below the 200 period moving average, stay away. There have been studies done which show that your win percentage and profit potential is much higher if you stay on the correct side of this average. Just recently, the 200 period moving average fell below price (on the weekly chart), putting all time frames in alignment.
The 20 period and 50 period moving averages represent the short-term and medium-term trends, respectively.
On the weekly chart, pay attention to the slopes of the averages and how the price is reacting off of them. The 200 period moving average is at an upward sloping angle, indicating the long trend is still to the upside. If you noticed all the stock did was mean-reversion to this long-term average. This is not a new phenomenon. (any time you worry about a stock that stopped outperforming, check to see if it is above its 200 period average. If it is, all that is occurring is mean reversion.)
Both the 20 and 50 period moving averages have flattened out, which indicates that Apple stock is at an inflection point. In addition, the price has bounced off the 50-period average. It indicates that Apple stock is in the process of continuing its uptrend. Because Apple is above all three averages, there is a high probability that the stock will go higher. However, you need to be careful because each weekly bar contains a huge fluctuation in price. If you enter on the weekly, you may close your position out too early because the swings may be too much for you to handle. This is where lower time frames come in.
The daily chart shows you that when Apple was having a pullback, you had no business of entering the stock. Why? The 200 period average was above the price. There was a low probability that Apple stock price would go higher. Now that has changed. The 200 period moving average is below the stock price. Interestingly, there is a cluster of the 20, 50, 200 period averages now. This phenomenon is known as confluence. Confluence is when more than one indication lines up at a specific zone. It indicates a high probability zone. In addition, this area also appears to be the start of the CD wave because of the break above the 200. (For more information on CD Wave read my earlier post on Microsoft)
For most people, the weekly and daily charts should be enough. However, I know some will want to be even more precise with their entries. I strongly urge against this practice, unless you are an expert in short-term timing. If you look at the one hour chart, you have so many headaches to deal with. There is a huge gap on the one hour chart. You could eventually wait until that gap fills and then enter. Knowing the tendency of human nature, most likely this will end in you going as low as a tick chart and turning an investment that may last a few months into one lasting a few seconds.
In short, just look at the weekly and daily. And looking at those charts, Apple stock has a high probability of heading higher.