Why Apple Has Risen from a Technical Analysis Perspective 25 comments
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I was on Ken Ray’s Day 6 podcast this weekend (February 14, 2009) trying to make sense of the markets. Ken was interested in why Apple (AAPL) had risen from its lows of 78 to over 100 in the past three weeks without any apparent news events to correlate with the move. We talked about how uncertainty and mob sentiment determines the price of AAPL, or any stock. But I don’t think Ken was buying the explanation I gave. Or perhaps he wanted to understand, but it’s all so complicated it’s no wonder how anyone makes sense of it.
The disconnect comes when we don’t decouple news events and company fundamentals from the supply and demand realities on the trading floor. The term trading floor is more of a metaphor, as the Nasdaq and S&P stocks aren’t traded on a trading floor anymore, everything is electronic. But the basics still apply, where price is determined by both the supply and demand of a stock. And that supply-demand equation changes with the winds of investor sentiment, which can be affected by a multitude of factors.
Some of those factors are specific company news events, like Steve’s health, earnings reports, product announcements, etc. But sentiment can and is affected by economic conditions, natural disasters, and events in other seemingly unrelated sectors, like with housing.
I said seemingly unrelated, but in fact the health of these sectors does have a tangible affect on companies like Apple. Consider that when housing fails, it affects peoples jobs and thus their ability to spend money on electronic equipment like iPods and iMacs. When energy prices go up, it affects the price to transports products, or travel to the nearest Apple Store.
Click image to enlarge
This chart shows that a positive divergence has been building between AAPL price and the oscillators (MACD and RSI). A positive divergence is when price trends down while the oscillators trend up. This means the momentum or optimism in the stock is building. At some point positive divergences usually result in bullish reversals. And that’s exactly what happened here around Jan 20.
Investors and traders are looking at these issues as well as a thousand other factors that can influence their buy and sell decisions. The aggregate of all these things result in changes in the sentiment of this mob. Technical analysis is nothing more than a way to measure this mob sentiment. The sentiment at any point in time is some degree of pessimism or optimism, and it’s constantly changing. Sometimes it changes abruptly, based on factors that have nothing to do with Apple, yet it affects AAPL price none the less.
So Technical Analysts are really sociologists. We use charts and mathematical equations to illustrate the mob’s behavior. We have developed a wide range of technique and patterns that correlate price movement to changes in mob sentiment. Mobs behave in somewhat predictable manner, however the analysis we use is not a determinate or prescriptive science, therefore the abilities of an analyst to predict price movement are largely determined by their overall knowledge, experience and artistic ability. Yup, TA is more art than science.
Disclosure: None
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This article has 25 comments:
Perhaps is building a rounded bottom in which you need more time in order to reach higher values.
Yours,
Rocca
If we break away from the downtrend, that will be good confirmation as well, even though we don't have "breakout" volume. In general, the volume has been trending down, not only with AAPL, but also with the indexes. This is typical in a descending triangle that sports a bullish reversal.
Now, this isn't to say that everything is hunky dory, oh no! Having a few leaders breakout without the mid and small caps joining in the parade is not a good thing. We need these little guys to ante up, or this advance will mean nothing to the greater market.
On Feb 15 08:16 AM rocca wrote:
> Zach, nice chart but take into account that there is no break volume
> so I think market do not see the same figure as you.
>
> Perhaps is building a rounded bottom in which you need more time
> in order to reach higher values.
>
> Yours,
>
> Rocca
Ohmigod Zachy admits the line he's been feeling us it nothing more than his "hunches" on up/down trading volume in APPL!
And here I spent working DAYS on AAPL charts to find that AAPL had trace a spare overcoat WITHOUT a zipper---VERY important--- that had ascended through the falling turnover line & would soon crash through the tea cup WITHOUT a handle---also VERY important---which would invariably lead to a double head loss on the lower shoulder side.
This of course means that AAPL will fall to a point below where it recently closed, followed by a sharp rise above the price it achieves & then it it may move laterally until its direction changes.
See just like the Zachmiester.
Send cash only, no checks. MC/Visa also available.
Ayuh
Hi Zach, one simple point you forgot in your opening line of your post - Apple announced Q1 earnings and Q2 projections after hours on Jan 21. The stock popped prior to the news on anticipation on the 21's (78.20 to 82.83 close on the 21st) and popped again following the fantastic earnings report (closed at 88.36 on the 22nd).
The initial premise of the discussion is flawed due to the fact that there was significant news that caused the price to rise over $10 per share related to the January earnings report. Take that out, and the movement mostly mirrors the rest of the market in that timeframe.
Is that "tangible effect," or really "tangible affect?"
On Feb 15 10:40 AM moose60061 wrote:
> I think this article would have been more valuable had it been posted
> around Jan. 20th.........not 25 days after
So that was when you found:
"....AAPL charts to find that AAPL had trace a spare overcoat WITHOUT a zipper---VERY important--- that had ascended through the falling turnover line & would soon crash through the tea cup WITHOUT a handle---also VERY important---which would invariably lead to a double head loss on the lower shoulder side......"
And you kept it to yourself & didn't tell your adoring millions on SA?
Shame, Shame Zachy that is very selfish.
Ayuh
On Feb 15 08:16 AM rocca wrote:
> Zach, nice chart but take into account that there is no break volume
> so I think market do not see the same figure as you.
>
> Perhaps is building a rounded bottom in which you need more time
> in order to reach higher values.
>
> Yours,
>
> Rocca
At the end of the day your chances are still 50/50, no matter what you do. Information bias wont change that.
1. You could have written this same article in late November when AAPL bottomed at about $79. RSI and MACD both diverging. Only to ride AAPL up to about $105 and back down again to $78.
2. What is your comment on AAPL now? Looks to me like a double top or at lease resistance at $105. also the RSI is looking overbought and MACD is weakening.
SFS
It's a typical tact used by children as well.........I'm teaching mine not to be Ayuh.
For instance, look at Microsoft's continuing fiasco--Windows seven is truely 'lipstick on a pig' as one of the leading of publications called it the other day. Until such time as they start over with their codebase, the mass exodus to Mac isn't going to stop. Also, just use the products from each company and it's pretty clear where to put your extra cash.
jegan
jegan
On Feb 15 02:38 PM Infinite loop wrote:
> Ayuh's ignorance is showing. As if Fundamental Analysis offers any
> more guarantee of success. The smart investor would not ignore ANY
> information pertaining to their holding. Apparently Ayuh prefers
> to remain ignorant to the emotions influencing his holdings.
>
> At the end of the day your chances are still 50/50, no matter what
> you do. Information bias wont change that.
I profess to ignorance. Do you?
TA is no more than a self fulling prophecy where "traders" jump on certain patterns either on the buy or sell side. If the stock doesn't make the excepted move they invent a new chart pattern to explain it. It is only useful to traders who use it to profit off these self fulling moves & take their lumps when it does not pan out.
Just check back through Zachy's BS & you will see the constant flip flop & weasel clauses he uses to appear to be "right".
It is your money, use it as you wish. But save us the savant BS please anal ists & SA has MORE than enough to spare.
Ayuh
I agree with commenters above: I think they will flop. Just look at who is leading, someone from Walmart!
Now Walmart is a great business - at least from an investment perspective (please - I do not want to get into a Walmart war here, not my point).
But they are such a hugely different model from the Apple Store. Apple: great products, intense personal service available, enthusiasm. Walmart: low prices, little service - move massive quantity at lowest possible cost.
About the only thing that Apple Stores and Walmart have in common are cash registers! (Wait,Apple stores do not use them.)
Loved the explanation that Apple's sales would drop when gas prices rise because people would stop driving to the Apple store. Is there really anyone who wants to buy a $2,000 laptop but won't because it would cost an extra $.25 to drive to the mall? Couldn't they just order the machine on-line? I can, however, see someone put off a big purchase when they are spending an extra $50 a week on gas.
Then, earnings sent this stock up almost 10 bucks.
From there Apple performed exactly like you'd expect. With a beta of 1.9, Apple moves 1.9 times the market. The Nasdaq is up 6% after Apple's initial earnings jump and Apple is up 12% (January 23rd - Present).
Zach, you need to learn to look at other things besides charts or you are going to remain lost in the wilderness. There is absolutely nothing unusual here, and I'm sorry you wasted all this effort trying to find a reason in your charts.
If 90% of the institutions playing this game are Program Trading (IE: Automated Trading based on Technical Analysis) wouldn't it be prudent to know that information? And would it not further be of interest as to where their buy and sell triggers are located? The institutions of this world are not just using FA and then flipping a coin to determine when to buy and when to sell. They use TA to determine that course of action. I've worked in this field for over 25 years now. I know how the game is played.
By not making the effort to understand the underlying behavioral forces that influence TA and your holding, you are limiting your knowledge of your company and flying blind. FA offers no better correlation to success. A true investor would attempted to increase his/her chance of success by using ALL pertinent information regarding a holding to evaluate the proper course of action.
But feel free to throw darts if that makes you feel better. Ignorance is bliss.
On Feb 15 10:40 AM moose60061 wrote:
> I think this article would have been more valuable had it been posted
> around Jan. 20th.........not 25 days after
I said NOTHING about program trading or FA as the way to go. Perhaps in your 25 years of TA experience you should have taken some time out for a reading comprehension course or three.
You said:
"Ignorance is bliss."
You're certainly spot on there. You must be in Hog heaven.
Ayuh