Sep 2008
Apple Revisited and Why Technical Analysis Can Help The Average Fundamental Investor: by Andy Cole
28/09/08 22:58
Actual article
can be found here.
Technical analysis often gets a lot of shtick from fundamental investors as something of a gimmick, a Wall Street fable that means nothing to the average investor as long as an that person holds the stock for long enough. However, I am here to show you the value of technical analysis even to the long-term investor and why Apple might actually be showing signs of a quality risk/reward entry point to the long side.
On July 25th, I wrote an article concerning the short-term weakness that Apple’s stock (trading at $162) would experience over the coming months, and of course, I was absolutely lambasted.
Here are some of my favorite quotes from the comments section:
“What a joke!!! Sorry but Apple will skyrocket.”
“Andy, you are an idiot!!”
“Perhaps we should not dignify Andy's idiocy with our attention.”
and my favorite…
“You should have more market experience and knowledge before you start posting your opinions on a site such as Seeking Alpha. It is the PRUDENT thing to do (you should already know this). It's one thing to have your own personal blogging site, but it's another when the site is highly visible.”
The only thing that I can hope is that these investors had cash sitting on the sidelines to put to work now, because Apple is now trading at much more enticing levels than it was a couple months ago. And the best thing? Apple is still a great company. Yes, the recession will affect them with regards to their margins and overall sales, but let’s quickly look at the fundamentals:
• iPhone 3G: It’s been a blockbuster here in the United States, no doubts about it, and now it’s gone global. I can’t walk anywhere without seeing one of these things. Munster thinks Apple should easily sell 4.47 million iPhones this quarter, up 9% from his previous guess of 4.1 million, and up 299% from the 1.12 million it sold during the September quarter last year. Munster’s analysis on Apple has been spot on for years, and I am inclined to agree with his most recent analysis here.
• Mac Sales: As a college student, I can say first hand that Apple is the dominant player on any campus. They are the “in” thing and I don’t see that changing in the foreseeable future.
• Steve Jobs: He comes out and declares his good health. Nice.
• The Numbers: The big focal point of this company has to be its balance sheet. Apple is swimming in cash, $20 billion of it to be precise. And in an economy where credit/loans are near impossible to get, Apple has a great strategic advantage in that they don’t need any money. Furthermore, this stock is trading at a P/E of 25. Now, this is a stock that has traded at near these same levels almost seven months ago, making it almost cheaper now than it was then, another strong case for the bulls.
And now, let’s look at the chart to see not only how we got to Apple’s current position, but also to see if we can get a better idea of where this one is headed into the coming months:
The key to noticing that Apple would be subject to some immediate short-term weakness was to observe that in the month of May, Apple repeatedly failed to break past that $190 resistance area. Each time it pulled to within touching distance, the stock sold off hard. Not soon after, the stock sold off through the 50-day average, which for many traders, is considered to be a very bearish move. And finally, the killer blow: Apple blew through it’s 200-day average on heavy volume and the short trade was confirmed.
In the month of August, we saw a very nice rally in Apple off that $155 area. However, the acute investor would have noticed that this rally was on very low volume, meaning that the hedge funds, mutual funds, etc. were not putting their money on this rally whatsoever. Ideally, one would have again been able to get short of this stock around that 50-day average and continue to ride it down.
Today, we are sitting at around $125 and change. There is a very well defined support level at $120 and any new long positions in Apple have a very nice risk/reward ratio in this area.
So for all you Apple lovers out there, now it might be time to start loading up. And just a quick disclaimer: this article is being written on a new iMac and in all honesty, I just can’t say enough about what a beautiful computer this is: sexy, simple, and just a pleasure to work with.
I’ve been on the Apple train my entire life and love their products, but I won’t let my love for those products blind me into paying a premium for their stock price. Just a quick technical analysis of Apple’s chart would have prevented that from happening.
In concluding this article, I would like to encourage individual investors to learn some basic technical analysis, even if it is just a little. At the end of the day, you will sleep better and you will most likely be on the winning side of more trades in the future.
Good luck.
Technical analysis often gets a lot of shtick from fundamental investors as something of a gimmick, a Wall Street fable that means nothing to the average investor as long as an that person holds the stock for long enough. However, I am here to show you the value of technical analysis even to the long-term investor and why Apple might actually be showing signs of a quality risk/reward entry point to the long side.
On July 25th, I wrote an article concerning the short-term weakness that Apple’s stock (trading at $162) would experience over the coming months, and of course, I was absolutely lambasted.
Here are some of my favorite quotes from the comments section:
“What a joke!!! Sorry but Apple will skyrocket.”
“Andy, you are an idiot!!”
“Perhaps we should not dignify Andy's idiocy with our attention.”
and my favorite…
“You should have more market experience and knowledge before you start posting your opinions on a site such as Seeking Alpha. It is the PRUDENT thing to do (you should already know this). It's one thing to have your own personal blogging site, but it's another when the site is highly visible.”
The only thing that I can hope is that these investors had cash sitting on the sidelines to put to work now, because Apple is now trading at much more enticing levels than it was a couple months ago. And the best thing? Apple is still a great company. Yes, the recession will affect them with regards to their margins and overall sales, but let’s quickly look at the fundamentals:
• iPhone 3G: It’s been a blockbuster here in the United States, no doubts about it, and now it’s gone global. I can’t walk anywhere without seeing one of these things. Munster thinks Apple should easily sell 4.47 million iPhones this quarter, up 9% from his previous guess of 4.1 million, and up 299% from the 1.12 million it sold during the September quarter last year. Munster’s analysis on Apple has been spot on for years, and I am inclined to agree with his most recent analysis here.
• Mac Sales: As a college student, I can say first hand that Apple is the dominant player on any campus. They are the “in” thing and I don’t see that changing in the foreseeable future.
• Steve Jobs: He comes out and declares his good health. Nice.
• The Numbers: The big focal point of this company has to be its balance sheet. Apple is swimming in cash, $20 billion of it to be precise. And in an economy where credit/loans are near impossible to get, Apple has a great strategic advantage in that they don’t need any money. Furthermore, this stock is trading at a P/E of 25. Now, this is a stock that has traded at near these same levels almost seven months ago, making it almost cheaper now than it was then, another strong case for the bulls.
And now, let’s look at the chart to see not only how we got to Apple’s current position, but also to see if we can get a better idea of where this one is headed into the coming months:
The key to noticing that Apple would be subject to some immediate short-term weakness was to observe that in the month of May, Apple repeatedly failed to break past that $190 resistance area. Each time it pulled to within touching distance, the stock sold off hard. Not soon after, the stock sold off through the 50-day average, which for many traders, is considered to be a very bearish move. And finally, the killer blow: Apple blew through it’s 200-day average on heavy volume and the short trade was confirmed.
In the month of August, we saw a very nice rally in Apple off that $155 area. However, the acute investor would have noticed that this rally was on very low volume, meaning that the hedge funds, mutual funds, etc. were not putting their money on this rally whatsoever. Ideally, one would have again been able to get short of this stock around that 50-day average and continue to ride it down.
Today, we are sitting at around $125 and change. There is a very well defined support level at $120 and any new long positions in Apple have a very nice risk/reward ratio in this area.
So for all you Apple lovers out there, now it might be time to start loading up. And just a quick disclaimer: this article is being written on a new iMac and in all honesty, I just can’t say enough about what a beautiful computer this is: sexy, simple, and just a pleasure to work with.
I’ve been on the Apple train my entire life and love their products, but I won’t let my love for those products blind me into paying a premium for their stock price. Just a quick technical analysis of Apple’s chart would have prevented that from happening.
In concluding this article, I would like to encourage individual investors to learn some basic technical analysis, even if it is just a little. At the end of the day, you will sleep better and you will most likely be on the winning side of more trades in the future.
Good luck.
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