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Summary

  • Apple is a far different investment than what it was.
  • Apple is a great trading vehicle though.
  • The stock is currently poised to decline.

Those diehard investors in Apple (AAPL) that we saw a couple years ago resurfaced recently when Apple shares finally began to increase. My first hand experience with these persons stems from my warnings when Apple was approaching $700. I warned that the growth rates would not be able to be sustained; I warned that the stock was way ahead of itself, and I warned investors to get out. More recently, I have also defined Apple as an excellent trading vehicle, but a much different investment. Some of those diehard Apple fans refuse to listen.

For people who have embraced this ideology, trading Apple has been fantastic. The most recent cycle began with short signals that surfaced last year, and which resulted in excellent gains because Apple's stock fell hard. Using the same approach, buy signals surfaced when Apple fell and then began to recover after that, and that too was largely profitable given Apple's recent rally.

My experience has taught me that it is at these times that those diehard investors surface, and we should use those as contrarian indicators. Those of us who are approaching Apple with a trading philosophy, taking advantage of both the increases and declines, and making money while others tread water, we should embrace the fact that Apple has recently tested its longer-term level of resistance and so long as that holds downside risks exist and the stock can fall back to longer term support levels again as those are defined in our real time trading report for AAPL.

The fundamentals here absolutely matter, and those are integral to this observation. The fundamentals tell me that Apple is still a great company, cash flow is superb, and recent earnings and revenue results prove that the company has stabilized. In fact, I would go so far as to say that the last quarter's results were excellent, but that doesn't change the dynamic that makes Apple an excellent trading vehicle, and a far different investment.

Even with sound fundamentals the stock is still likely to fall after testing longer term resistance. Had it not been for those solid fundamentals, the stock very reasonably would have broken below longer term support earlier in the year, but the sound fundamentals allowed it to bounce to resistance instead.

Traders who are paying attention to the price action after realizing that Apple is still a good company also are recognizing that they should be buyers when the stock gets hammered, and Sellers or even short Sellers when the stock rallies. This is completely contrary to what the message boards and blogs portray, because they will be resoundingly negative when you should be buying the stock and resoundingly positive when you should be shorting it.

Reasonably, transitioning from a long position to a short position is also a process, it usually comes in stages, and that means before a person who owns the stock turns short he should probably sell, be patient, reevaluate, and look for entry levels either on the long side or the short side again depending on what happens to the stock after he gets out.

My point, do not be afraid to take profits if you are long the stock from the tests of longer term support earlier in the year; the stock looks like it is heading back towards longer term support.

If you are an investor be prepared for sideways action with a downward bias over the next few years, but yes, you will get the dividend. That last line is what defines Apple now. Investors in Apple who were once in it for eye-popping growth are now in it for the dividend and the share buybacks. That's materially different, and that is what makes Apple a different investment than what it was.

In my opinion, it is a great trading vehicle.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: By Thomas H. Kee Jr. for Stock Traders Daily and neither receives compensation for writing this article from the publicly traded companies listed herein.

Source: Apple Is Heading Lower