Apple Inc. (AAPL) stock set its 2019 high of $208.48 last week on April 24. This was a test of its second quarter risky level or price target at $208.26. This level was established based upon my proprietary analytics with the input of the close of $189.95 set on March 29. Investors who have been long Apple for a long time should consider reducing holdings on strength to $208.26 if tested again on April 30 when the company reports quarterly earnings.
Apple stock closed last week at $204.30, up 29.5% so far in 2019 and in bull market territory at 43.9% above its Jan. 3 low at $142.00. The stock is still in correction territory at 12.5% below its all-time intraday high of $233.47 set on Oct. 3, the day the Dow Jones Industrial Average peaked at 26,951.81. From high to low, Apple shares plunged by a bear market decline of 39%.
Analysts expect Apple to post earnings per share of $2.37 to $2.47 when the tech giant reports after the closing bell on Tuesday, April 30. Apple is no longer a cheap stock. Its P/E ratio is 16.80 with a dividend yield of just 1.43%, according to Macrotrends. The S&P market multiple is around 17.6.
Remember that Apple no longer offers specific sales numbers by iPhone unit. Settling legal issues with Qualcomm Incorporated (QCOM) is a positive as the companies work together on 5G implementations. The Chinese slowdown could be a drag. Apple Music should remain a positive. Positive guidance on plans to expand into a streaming video TV platform could be the game changer. In my opinion, Apple should increase its dividend.
The daily chart for Apple
The daily chart for Apple shows that the stock is in a bull market in 2019 that is a consolidation of a fourth quarter 2018 bear market. The stock is above its 50-day and 200-day simple moving averages at $187.59 and $191.85, respectively. These averages are converging, and if a positive reaction to earnings takes out its quarterly risky level at $208.26, a "golden cross" formation is likely in early May.
The 2018 close of $157.74 on Dec. 31 was input to my proprietary analytics, and the semiannual and annual value levels are $187.47 and $182.85, respectively. The close of $189.95 on March 29 was another important input to my analytics, and that resulted in a monthly pivot at $193.71 that expires on April 30 and the second quarter risky level at $208.26, which remains in play until the end of June. There's a weekly risky level at $222.59 for this week.
The weekly chart for Apple
The weekly chart for Apple is positive but extremely overbought, with the stock above its five-week modified moving average of $192.54 and well above its 200-week simple moving average, or "reversion to the mean," at $146.00. When the stock traded as low as $142.00 on Jan. 3, it nearly tested its "reversion to the mean" at $141.85, coming close enough to consider a buying opportunity.
The 12 x 3 x 3 weekly slow stochastic reading rose to 91.87 last week, which makes the stock an "inflating parabolic bubble." As 2019 began, this reading was 7.54, well below 10.00, which was my indication that the stock was "too cheap to ignore." In sum, Apple shares were "cheap" as 2019 began, and they're not cheap now.
Trading strategy: Buy Apple shares on weakness to the semiannual and annual pivots at $187.47 and $182.85, respectively, and reduce holdings at the quarterly and weekly risky levels at $208.26 and $222.59, respectively.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.