Apple Inc. (AAPL) set its recent low of $142.00 on Jan. 3 when the "reversion to the mean" was $141.85, so this key level held as expected. The stock ended last week at $157.76, flat so far in 2019. Apple stock is in bear market territory at 32.4% below its all-time intraday high of $233.47 on Oct. 3, and it has recovered by 11.1% from its low of $142.00 set on Jan. 3.
Apple reports quarterly results after the market closes on Tuesday, Jan. 29. The stock has a P/E ratio of 13.29 and a dividend yield of 1.85% according to Macrotrends. Analysts expect the company to earn between $4.17 and $4.25 per share. In a letter to shareholders sent by CEO Tim Cook on Jan. 2, revenue guidance for Apple was reduced. This letter led to the stock setting its latest cycle low of $142.00 on Jan. 3. Macroeconomics have come into play such as the strong dollar, economic weakness in emerging markets and overall slower demand for iPhone upgrades.
There were chart warnings that came into play as the weekly chart showed that the stock began to become an "inflating parabolic bubble" during the week of Aug. 24, and this lasted through the week of Sept. 14. This was a reason to reduce holdings on strength to risky levels. As October began, I had a fourth quarter risky level at $227.22 as the price at which to reduce holdings.
My measure of momentum is the 12 x 3 x 3 weekly slow stochastic reading, which scales between 00.00 and 100.00, where a reading above 80.00 is overbought and a reading above 90.00 is an "inflating parabolic bubble." On the opposite side of the readings, Apple's weekly stochastic reading ended 2018 oversold, below the 20.00 threshold and below the 10.00 level, making it "too cheap to ignore," which was the reason to buy Apple shares at the "reversion to the mean."
The daily chart for Apple
The daily chart for Apple shows the formation of a "death cross" on Dec. 20, when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices would follow. The 2018 close of $157.74 was input to my proprietary analytics and resulted in the four horizontal lines: my weekly value level at $146.31 as well as my semiannual and annual risky levels at $168.72 and $182.85, respectively. The highest line represents my quarterly and monthly risky levels at $218.66 and $218.86.
The weekly chart for Apple
The weekly chart for Apple is negative but oversold, with the stock below its five-week modified moving average of $161.33 and above its 200-week simple moving average, or "reversion to the mean," at $142.42. Buying at the "reversion to the mean" was a successful buy-on-weakness strategy between the weeks of May 6, 2016, and July 1, 2016, when the average was around $93.30. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 12.69, up from 10.01 on Jan. 18 as it rose above the 10.00 threshold of being "too cheap to ignore."
Trading Strategy: Buy Apple shares on weakness to my weekly value level at $146.31 and to the 200-week simple moving average at $142.47. Sell strength to my semiannual and annual risky levels at $168.72 and $182.85, respectively.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.