Apple Inc. (AAPL) closed 2019 at $293.65 and closed Jan. 10 at $310.33, up 5.7% already in 2020. The stock is in bull market territory at 118.5% above its low of $142.00 posted on Jan. 3, 2019. The stock is setting new highs almost daily, including today, Monday, Jan. 13.
Apple has beaten earnings per share (EPS) estimates in 14 consecutive quarters, but the stock is not cheap. Its P/E ratio is 26.19 with a puny dividend of 0.99%, according to Macrotrends. The last time the P/E was above 25 was just before the Great Recession and the stock market crash of 2008.
The latest bull market for Apple began in July 2016, when the stock held its 200-week simple moving average (SMA), or "reversion to the mean," at $93.31. The gain from this low to the high of $233.47 set in October 2018 was 150%. Then came a bear market correction. From the October 2018 high to the low of $142.00 set on Jan. 3, 2019, the stock plunged by a bear market 39%.
At this low, the stock held its "reversion to the mean," where the stock was a buy. This began the bull run of 118.5%. Given a bear market correction in 2020, the downside risk to its 200-week SMA at $168.63 would be 45%.
The close of $293.65 on Dec. 31, 2019, was an important input to my proprietary analytics. I do not show any risky level, but there is risk to several value levels. The value level for January is $270.90. The first quarter value level is $260.88. The first half semiannual value level is $262.02. The annual value level for all of 2020 is $253.68. As 2020 progresses, risky levels appear likely at $333.60 to $347.25, which is well below the price targets published by Wall Street research.
The daily chart for Apple
The daily chart for Apple shows that the stock has been above a "golden cross" since May 8, when the 50-day SMA rose above the 200-day SMA to indicate that higher prices would follow. Even so, the stock slipped to a test of its 2019 annual pivot at $182.85, which was a buying opportunity. The four horizontal lines show the four value levels in play for the beginning of 2020.
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 $287.60. The stock is well above its 200-week SMA, or "reversion to the mean," at $168.63.
The 12 x 3 x 3 weekly slow stochastic reading ended last week at 96.27, well above the overbought threshold of 80.00 and well above 90.00, making the stock in an "inflating parabolic bubble" formation.
Trading strategy: Buy Apple shares on weakness to the monthly, semiannual, quarterly, and annual value levels at $270.90, $262.02, $260.88, and $253.68, respectively.
How to use my value levels and risky levels: The closing prices of stocks on Dec. 31, 2019, were inputs to my proprietary analytics and resulted in new monthly, quarterly, semiannual, and annual levels. Each calculation uses the last nine closes in these time horizons. New weekly levels are calculated after the end of each week. New monthly levels occur after the close of each month. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.
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 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. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which typically is followed by gains of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.