Apple, Inc. (AAPL) is probably the most widely followed stock in today's stock market. The consistency with which it has solidly beat earnings estimates is that of which legendary stocks are made. Some will go so far as comparing it to the Secretariat of the stock market. But, has Apple lost its polish?
The next week or two will give us our answer.
From a fundamental point of view, rumors abound of the Apple TV - iPanel - coming out very soon. Many believe it will revolutionize the television world. If it does, then this could very well be the "reason" people look towards new highs in Apple. This is behind the reasoning for stock targets by investment firms of over $700 a share, with Goldman Sachs setting its price target at $850.
But, what if sales do not go as expected? What if there are many problems with this new product? What if Apple has lost its appeal to the public or its pricing is simply unreasonable?
As some of you know, I do not trade news nor do I invest based upon news. I will analyze a stock or an index based upon sentiment. I believe that it is sentiment that moves markets while many believe that it is earnings. If it were truly earnings, then stock prices would never fall if a company meets or exceeds its earnings estimates, and we all have seen the shock on investor's faces when their stock is declining after beating earnings.
To give you a little recent history of our record on Apple of late, let me take you back to the initial decline that took Apple down to the 556 level. While Apple began its correction from its top in April, we had set a target of 555-560 as a buy zone for Apple based upon our Elliott Wave and Fibonacci 1.00 extension calculations. Well, it just so happens that Apple hit that target buy zone right before earnings. So, we bought Apple in our Trading Room. Well, as we now know, right after earnings, Apple had a $70 gap up, so we sold and took our profits quite elatedly.
But the question still remained as to whether the top was in. So, while some of our members were shorting AAPL on its next decline, we set the next buy zone at the 530 region, which was based upon our Elliott Wave and Fibonacci 1.00 extension calculations again, but on a larger degree pattern. As we know again, AAPL found a bottom in that region, and has since moved up to just below its .382 extension. So, at this point in time, Apple is in a very precarious position at it relates to its overall longer term uptrend.
As you can see from the attached 60 minute chart, we have two possibilities currently, one bullish and the other bearish. At this time, under both scenarios, Apple should see a pullback begin shortly. However, in order to maintain the bullish perspective, ideally, Apple should only decline to the 560-565 region. A breakdown below 560 is the initial indication that Apple may be in trouble. A breakdown of the 548.50 level would confirm for me that Apple is going to be going much lower and my target would be around the 495 region. It should not take more than a few weeks to reach that target.
Such a decline would indicate that the top is most likely in for Apple for quite some time to come.
So, I know that many of you are now thinking that I have gone completely mad, since Apple will be handily beating earnings once again and the i-Panel will cause it to exceed $800. Well, consider how these types of patterns (they are referred to as "leading diagonals") develop. After this type of pattern has completed, we usually see a very deep retracement. So, if Apple does decline to the 500 region, and assuming another blow out earnings beat and another $70 move up in the stock, we will still be well below the prior highs. So, even if I think Apple may get back as high as $600, I do not believe it will make another high if we see it break down below 529. Therefore, if it does break below 529, any rally that takes it up as high as 575-600 should be used as an opportunity to unload your holdings, as AAPL will then enter a much larger decline to much lower levels with potential targets in the low 400 region.
However, if Apple is able to maintain support over the 550 level on its upcoming pullback - and ideally maintaining support between 560 and 565 - and then move over the 585 level, then it will likely see new highs in the upcoming months, with the next larger move up being a strong move to take it back to the 620-640 region.
And, as they used to say, "as GM goes, so goes the market" . . . but, in today's times, I think we need to now say, "as Apple goes, so goes the market."
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.