Apple's Low Volume: Meaningful Pause Before Going Higher?

Did Apple (AAPL) and the markets simply throw a head fake last week? Was losing critical support just a temporary blip on the path to higher prices, or are we backtesting that uptrend established over the past six to seven weeks, only to fall under the pressure of financials and inflation?

The downtrend call I made last week may have been premature. But I'm conflicted with the poor market internals and the very weak volume to declare that Friday's performance means we're going higher. AAPL definitely did not have a stellar week, and Friday's action was a roller coaster ride, showing little conviction. The S&P, Naz and Dow finished the week strong, but they were still well off the highs of the previous week, and volume was pathetic. In fact volume was lower on the Naz than with any other session this year so far.

To add to this uncertainty, AAPL daily charts have been plotting nothing but Doji and Spinning Top candlestick patterns over the past seven trading sessions, that's a sign of investor indecision. And on top of that, the trend is still down over the period. Should I feel good about that? Well I don't, particularly in light of the muted 20 country iPhone launch, which I felt investors had already baked into the price and discounted long ago.

click to enlarge

What I do feel good about is that AAPL is forming a Pennant with declining volume. So perhaps this is merely a pause in a strong uptrend. Pennants are usually preceded by a strong advance, and typified by declining volume. See the chart above. Also, we have the positive divergences on the weekly charts that I feel are starting to play out on the Tech sector, energy services and commodities.

Most Investors are focused on two things right now, the financial situation and inflation. So I feel Friday was a lift of the spirits, as Ben and company indicated that rate increases would not not be considered anytime soon, and that they "had a plan" for any pending trouble of an unnamed financial institution.

The other air of hope was for inflation, via gas prices. It was amazing how that huge advance Oil made on Thursday was completely wiped clean on Friday. I don't recall ever seeing such whipsaw price action in Oil. Where was the news that spurred that on? You gotta wonder if the cat and mouse game that Russia is playing with Georgia is losing it's impact on the world stage.

There was definitely a lift from rumors that Lehman (LEH) may be settled by foreign investments, or the Warren Buffet may rescue it. I think investors are pinning hopes that one of the big financial outfits will simply be taken off the books, then we can all move forward.

So this is why I need your help. I see good and bad in this market. I see incredible turmoil throughout the world, but also technicals that are pointing to significant upside potential. At this point if I had to take a stand, I would say that my call for a new downtrend was wrong, and that we're merely pausing and taking a breather, getting ready for a strong push forward. Let me know what you think, will ya?

Disclosure: Long AAPL

Comments

[icanpress:]

I reckon demand destruction has had plenty to do with this. Underlying fundamentals are still strong. Look for Apple to peak at $240-$250 this year.

2008 Aug 25 04:47 AM

[forty-one:]

I'm short on apple. But I believe now it was prematured to enjoy a maximum of benefit... (Fiever...) : Apple can still rise in the short term (190-200).
Therefore, You can't reasonably believe aapl will reach 250 or this kind of widely shared "EXPECTATION" by analyst and other "specialists". No time enough for that if you consider NDX or SP500 on 2 years (daily or weekly data) and too high if you consider the wonderful double top in the apple chart (daily data ; 2 years). That's for technical analysis.
According fundamental data, Apple is not anymore "a good bargain". A solid company, without any doubt, but also a solid valuation (P/E : 34). And We are not in the middle of a tech bubble.
Economically, the credit crisis only begins to have effect on consumers. The second round : the lost on credit cards (Don't buy American Express) and tightening and rise of interest and so on. Credit crisis = Consomation crisis. And Apple is just about consumer gadget (with such price apple computers are gadgets ; if you don't have the bucks, you buy pc). And to reach developing countries, apple will have to decrease its prices.
Everybody begin to understand that.
In conclusion there is to much thing not in favor of apple. But who know...

2008 Aug 25 07:17 AM

[brewer:]

"if you don't have the bucks, you buy pc"

That is a ridiculous argument. Sure it can be a bit more expensive, but consumers USUALLY weigh the benefits of a name brand versus the generic fluff. Make no mistake, a PC, any PC is a generic computer, limited to Windows (a total mess) and Linux (they can't give it away.) There are Macs to match PCs at nearly every price point, and the Macs run it all, and run it all extremely well, even running windows (garbage) better than the similarly priced PC.

I think this relatively small price differential a about to decrease further, and that is the announced decrease in margins. (Combined with the millions upon millions of 'free' iPod touches given with an unprecedented, mind boggling number of laptops sold to education buyers this fall.) Also, Apple has doubled marketshare in the US and nearly in the world in the past year.

At what userbase percentage do people start to sell of MSFT? Twenty? Thirty? The whole advantage of MSFT was everyone used it. Already, this is not the case. MSFT has been coasting forever on the monopoly, it's finally losing steam, Apple is nearly the only company that can take advantage of that.

2008 Aug 25 08:45 AM

[T-table:]

Almost a cup and handle

2008 Aug 25 09:03 AM

[forty-one:]

"There are Macs to match PCs at nearly every price point" ==> Not in Europe. For a proper 15'' notebook, 1699 € (x1.5=2.549 $). One of my friend wanted one. Her first buy for a notebook. But no. She bought an ASUS : 699 €.
She saved 2/3 of her monthly wage. Ans she is happy with that.
You don't need to spend 1699 € to send mail, create and print doc,store photo, surf and listen mp3.
You can afford it if you have the money for it; but no when retail heating oil, food, gas raised in a such way you lost 10, 15 or 20 percent of you purchase power.

2008 Aug 25 09:18 AM

[forty-one:]

And that's not about MSFT. It's just about Apple.

2008 Aug 25 09:33 AM

[300mph:]

Brewer, your analysis is a joke. "Sure it (an Apple) can be a bit more expensive...". Get a grip, a lot more expensive. I just put together a top of the line pc that will do everything an Apple can do for about $2500. I priced an equivalent performance Apple and the cost was around $5000. That's what forty-one means by "if you don't have the bucks, you buy pc". And just for your information, I've been running my "total mess" Windows computer now with all the advanced applications for a year or more and I have yet to experience any problems, not even one system crash. So park your Volvo, put down your latte, take off your Birkenstocks and just chill, and spare us the political b.s.

2008 Aug 25 09:43 AM

[chano:]

I have spent so much time reading commentaries about AAPL, some informed, most based on a complete lack of understanding of what AAPL is in its markets ... across the world. To say that people who can't afford an Apple Mac will buy a PC is naive. You cannot compare the two. It is all about a few important things .... quality, pizazz and must-have-ability. If posters like forty-one would only see, instead of just looking, they would realise a few things. One, many people who couldn't afford an iPod, in all its forms, still went ahead and bought one because the alternatives were just puke-fodder. When it comes to discretionary purchases, computers are no different to cars. I don't hear anyone, including poor folk, complaining that a BMW or Mercedes cost more than a comparable model from Ford or GM. It's a value thing dummy. If people want to buy cheap, they have to expect crap like PCs or Ford/GM etc. They pay more because they know what they are getting - a better product that actually keeps on working really really well ... and secondly, higher residual values. So think on this before churning out the tired old untrue chant about PCs costing less than Macs. It just isn't true. See what you get and it is clear that PCs cost much much more. You get what you pay for and even poor people know that. They may have to buy second best sometimes but they all know a premium product when they see one. Be it a Merc, a Rolex or a MAc. Ask yourself, if Microsoft or Dell or HP opened a store, who would want to visit it and more importantly....WHY?

2008 Aug 25 10:18 AM

[300mph:]

chano, you are missing the point. You see, computers are now essentially toasters, you turn the dial, set to light or dark, press the button and out comes the toast. That's it, nothing more. All computers pretty much perform the same tasks and they all do it rather well. So, true,there will always be a minority of people who will spend more for a flashy case or some perceived pizazz, or be taken in by some misleading advertising gimmick. But most people will buy the best value. And for value the pc has no competitors. This is not just an opinion. Look at the cold hard facts of who has the overwhelming market share, who has the most availability of software and hardware options, and picture is obvious. Pc variants rule the market at this time.

2008 Aug 25 10:38 AM

[Mike Smith:]

The S&P 500 has been comfortable above it's 100 month average for a hundred years. The advent of the computer has raised production in the last 20 or so years, and we got a huge run up between 95 and 2000 with a correction in 01 and 02. Then we went in 5 years to a slightly higher high in 07 which was a little too fast (typical). At present it looks to me that we are near the bottom of a year long "U" shaped correction just above the 100 month average. I would expect everyone to remain cautious through the summer and jump on the band wagon when the market turns up in the fall. We'll probably take it up a little too fast until May when it will be time for another shorter correction. After that look for a couple of good years, but with the same type of action- up too fast-correct, up too fast- correct, over shooting in both directions.

2008 Aug 25 11:26 AM

[Mike Smith:]

I don't really see how we could hit $240 this year, but I could believe $210 by December and $240 by April.

2008 Aug 25 11:32 AM