Apple Inc. (AAPL) shares closed the first half of 2019 at $197.05, which became a key input to my proprietary analytics. The only level left over from the first half is its annual pivot at $182.85, which is now considered a value level. The daily chart shows a "golden cross," and the weekly chart has been positive since the week of June 14, when the stock closed at $192.74.
Fundamentally, Apple is reasonably priced with a P/E ratio of 17.18 and a dividend yield of 1.51%, according to Macrotrends. The maker of the iPhone, iPad, Apple TV, and an array of consumer and professional software applications is set to report earnings on July 30 with a winning streak of 12 consecutive quarters in beating earnings per share estimates.
Apple reported strong earnings on April 30, and the stock responded by setting its 2019 intraday high of $215.31 on May 1. Then came the "sell in May and go away" strategy, as the stock slumped by a bear market 20.9% to a June 3 low of $170.27.
In the longer term, Apple is consolidating a bear market decline of 39% from its all-time intraday high of $233.47 set on Oct. 3 to its Jan. 3 low of $142.00. The stock is strong in 2019 with a gain of 29.5% year to date and is up a bull market 43.8% since its Jan. 3 low. Even so, the stock is also in correction territory at 12.5% below its Oct. 3 high.
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 simple moving average rose above the 200-day simple moving average to indicate that higher prices lie ahead. Even so, the stock slipped to a test of its annual pivot at $182.85.
The close of $197.92 on June 28 was an input to my proprietary analytics and resulted in the following key levels. A monthly value level for July at $145.02 should not come into play, being blocked by the annual pivot and its semiannual value level at $178.71. Note that the quarterly risky level at $221.65 is below the all-time high.
The weekly chart for Apple
The weekly chart for Apple is positive, with the stock above its five-week modified moving average of $195.03. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $149.75. Apple stayed just above its "reversion to the mean" during the week of Jan. 4, when the average was $141.85 versus the low of $142.00.
The 12 x 3 x 3 weekly slow stochastic reading ended last week at 54.33, up from 48.14 on June 28. At the May 1 high, this reading was 92.53, above the 90.00 threshold making the stock an "inflating parabolic bubble," which popped during the 20% decline into June 3. As 2019 began, this reading was 7.54, well below 10.00, which is my indication that a stock is "too cheap to ignore."
Trading strategy: Buy Apple shares on weakness to the annual and semiannual pivots at $182.85 and $178.71, respectively, and reduce holdings on strength to the quarterly risky level at $221.65.
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 annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was changed at the end of June.
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.