Apple (NASDAQ:AAPL) the investment gift that keeps giving for over 10 years now is currently just taking a healthy rest. Apple is the perfect stock that cycles twice a year. Usually a leg up in the fall and then another early in the year taking a corrective break in the summer months. Currently Apple is experiencing a pull back along with the broader market after a run up that began early in 2012. This is a healthy needed adjustment for the next leg up.
There was much speculation of the reasons why Apple has pulled back 16% for it's recent top. One of the speculative reasons was that institutional investors were raising money for the recent Facebook (NASDAQ:FB) IPO.
Before we look at the Technical reasons why Apple's pull back is very normal and healthy we need to remind ourselves fundamentally that Apple is and will be going into the future one of the most important stock to own in our portfolios. First lets take a look at the most basic building blocks of a company's fundamentals revenue and profits from this chart, we can see that since 2008 quarterly revenues have grown from $7.5 billion to $46.3 billion. The next puzzle piece to be reminded of shows that since 2009, quarterly profit has grown from $1.21 billion to $13.06 billion.
The most common argument to this data is simply that Apple cannot continue to grow in this manner. While this maybe debatable, that past performance is not indicative of future performance there is currently no signs of Apple stumbling. Growth products (IPHONE) and new product introductions are fueling Apples balance sheets. The following chart show that AAPL revenue and profit continue to grow quarterly (Q3 2011/Q32010) at 155% and 200% respectively. Whenever a slowdown occurs, we should see the data in the earnings numbers. All the data suggests that Apple is and will be a growth stock into the future.
Technically, Apple is experiencing a health pullback and can even fall further and nothing will be remotely wrong with the Apple chart. Starting at a chart that most technical analysis don't even look at a 5 year monthly chart it's easy to see that Apple is comfortable in an up trend. Even in the 2008 / 2009 downtrend Apple easily bounced off the 50 DMA making Apple the buying opportunity of the decade. A yearly / monthly chart paints a more recent realistic picture of Apple's share price appreciation. This chart shows that the 25 DMA is very relevant point of interest where investors start to bid Apple's price. Apple can easily fall to the 50 DMA and nothing at all would be wrong with the Apple chart.
Taking a microscope to the Apple chart and looking at 2 more charts a 6 month weekly and a 6 month daily we would finally conclude that in the weekly chart Apple is coming in for a nice soft landing around the 25 DMA or 520 area. Will Apple head up for here over the next few weeks? That would be the million dollar question but at least at this point in time you have a nice trade range defined between low of 520 and 580. If the 520 point is breached the 50 DMA would be the next point of great interest in Apple. Looking at the 6 month daily chart Apple is in a corrective down trend and you can easily define the 520/ 580 range. Currently Apple is just bouncing off the bottom range and it is not normal for any stock to continue straight up. The projected current path is side ways / range bound but that is always dependent on the broader market outlook too. There should be no rush currently to purchase Apple since it's at the top of the range. Apple needs to adjust sideways after the recent run and place a healthy higher base to get ready for the next accent higher which is usually around earnings.
Apple like any stock is at the mercy of the broader market and any negative call by an brokerage concerning Apple would have a negative impact on it's current price too but currently Apple is experiencing a health price adjustment that may take a few months to play out. The best long term strategy is to wait until Apple trades comfortably above the 20 and 50 DMA nibbling at small quantities at the lower 520 range price.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.