Apple has a history of seeing its stock make significant moves to the upside, followed by significant corrections or retracements to the downside. In this article, I try and prove that what Apple is going through is not uncommon. And that the recent “gloom and doom” headlines are not something you should pay attention to.
Apple. The company that’s captured much of our hearts for more than a decade is now “doomed.” Day after day we see headlines suggesting that Apple is on its way to oblivion. The company is no longer making great products, they say. Tim Cook should be replaced! Supplier woes stir Apple demand fears. We’ve all read these headlines and they’ve clearly had an impact on both the company’s reputation and its stock price. But what most people don’t see nor realize, is that Apple has a history of this type of stock movement. In fact, there are more than a few instances where Apple has seen massive upward rallies followed by significant pullbacks (or retracements as I like to call them).
Before I go any further, I’d like to make clear that I’ve been a technical analysis trader for nearly a decade now. Technical analysis as defined by Wikipedia is a “methodology for forecasting the direction of prices through the study of past market data, primarily price and volume.”
What technical traders tend to do is ignore all the headlines, all the rumors, and all the bullshit that surrounds the stock market. Instead, they simply look at price and make statistical decisions based on probability. In this post, I simply want to show you a few examples of how Apple has a history of these types of movements and that it shouldn’t be the cause for any panic. At least not yet.
I also want to make clear that I am not, in any way, suggesting you should buy, sell or trade Apple stock. This is simply my opinion based on what I see.
In these examples, I’m going to show you some charts where I use Fibonacci retracements. Here’s a simple definition:
Fibonacci retracements is a method of technical analysis for determiningsupport and resistance levels. They are named after their use of the Fibonacci sequence. Fibonacci retracement is based on the idea that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction.
The idea is that when markets move, you can use these Fibonacci levels to predict where you may find either a support point or a failure point. In these examples we’ll simply look at support points since Apple has been coming down.
Apple Stock Charts
One last quick thing before we get into charts. Most technical traders use the 50% and 61.8% Fibonacci levels to predict where a market may find support or resistance. For example, if a stock went from $10 to $20, and then started to significantly pull back, many technical traders would expect that stock to have a lot of support somewhere in-between $14 – $15 (roughly 50% – 61.8% of the $10 move). In my personal analysis I have found this to be true nearly 70% of the time.
Now, onto some examples.
In the first example above, you can see that between late 1997 and late 1999, Apple saw a huge run from just over $3 a share to as high as $37 a share before seeing a massive drop to about $20 – a near 50% drop. Once it touched about 50% of the way down, it immediately bounced back up. This correlates with the Fibonacci retracement concept.
In the chart above, notice how Apple nearly tripled its stock price between the Spring and Winter of 2005, going from $32 to just over $85. Once again the stock dropped right inside of that 50% – 61.8% range in just a few months before bouncing back and heading to all-time highs. I don’t recall the headlines at the time, but I can only imagine they weren’t pretty.
Here we are in mid-2006 watching Apple quadruple from just under $50 a share to nearly $200 a share in just over a year. Again, we see a massive drop right inside of that 50% – 61.8% range (about $115) before bouncing back up. Are you seeing a pattern here? This is what markets do. In fact, let’s take a look at Google.
Here’s a look at Google’s stock from 2004 to mid-2007 jumping seven-fold only to give up just over 50% of those earnings in just a few months. Funny, I don’t remember Google having nearly as many doom and gloom headlines.
Finally, here we are looking at Apple’s insane rally from 2009 to date. A move that seems nearly identical to Google’s rally from 2004 – 2007. Given what we’ve looked at, what do you think the probable outcome is? Again, I’m not suggesting that you should buy or sell Apple. I’m simply pointing to the technical evidence at hand.
In fact, the entire point of showing you these charts is not to give you some Jim Cramer buy signal. It’s to tell you to ignore the bullshit headlines that seem to be flooding the internet and newspapers. They come from analysts. Analysts with agendas to either inflate the price of a stock they own or deflate the price of a stock they want. Regardless, good companies will continue to thrive and bad companies will continue to fail. Apple, in my eyes, is still a very good company. Time will tell if I’m right or wrong.
Since writing this article, we’ve seen Apple reverse quite a bit almost exactly as its price movement history indicated it would. Take a look at this chart from today, April 30th, the last day of the month. What you’ll see is that Apple has found support literally 50% of the way down from its last major rally. If history is to repeat itself, we should see Apple move up quite a bit over the next few months.
Either way, there are enough signs already showing that the stock is rebounding. Take a look at that reversal candle known in the technical trading world as a “hammer” (where the green arrow is pointing). What’s important to realize, though, is that nothing has changed in the past week. The headlines still paint “doom” and analysis continue to say the same things. We’ll take a look at this again in a few weeks or so.
It’s been roughly 3 weeks since writing this post and we’ve seen Apple not only bounce almost perfectly from the 50% retracement, but the stock has also rallied roughly 20% in that time. Funny, I’m not seeing any crazy headlines out there over the stock’s gains.
Based on my analysis (again, I’m not telling you to buy or sell), I give Apple a 70% chance of hitting $500 over the next few months. Given that WWDC is right around the corner, any news from Apple could push the stock up or possibly even take it down. Long term it’ll be interesting to see what Apple’s stock does. Historically we’ve seen some notable new highs after these types of major pull-backs. But then again, it’s possible that the stock could take a hit, just like it did in 2008 – 2009 with the economic collapse even though Apple was making record profits. It’s the biggest reason I always say “trade what you see, not what you think.”
Looks like I was right…
The past few months have been interesting. Apple has been hanging just under the $500 area deciding whether it wants to push upwards a bit more of possibly drop down. This week, we’ve seen some strong momentum to the upside leading up to the week of some big announcements from the company. Based on what I’m seeing, I expect Apple to push into the $540 – $580 range in the coming weeks (may take as many as 8). If it does manage to get into that area, it’s going to be very interesting to see if it can push through it. Remember (as I pointed out earlier in the article) the 50% – 61.8% area is notoriously an area that is challenging for stocks to push through. We’ll see what happens.
Apple has made a move up to around $540 (the 50% – 61.8%) as predicted but is having a hard time around that area. If Apple cannot punch through that area, we could see a drop back down into low 400’s. Keep an eye out.
As mentioned in the last update, Apple has rallied up to $550’s and is now nearing a resistance area. This is an important area for Apple because if it cannot get through here, we could see it drop back down as it has in the past. Check out this short video I recorded for more.
It’s been quite a while since an update. Why’s that? Well, Apple hasn’t done much in the lat 6 months. It’s been in a very tight range trading between roughly $500 and $560’s. This is what traders call “consolidation” – a period when a stock is in a lull state while it figures out what direction it really wants to go in. It’s impossible to tell for sure where it’ll go, but typically the longer the consolidation, the bigger and more explosive the move will be.
There are lots of rumors around what Apple is gearing up to do in the second half of the year. Some well-respected analysts believe that Apple will release a larger-screen iPhone alongside and iWatch, an updated Apple TV and new MacBooks. If this is true, it wouldn’t be shocking to see Apple shoot back to $700. On the other hand, we all know how stocks are. Good news doesn’t always mean a positive stock.
All-in-all, I expect either a quick move to $700 or a quick $400 before the year is over. Apple’s Developer Conference, WWDC, is less than 2 months away so maybe we get a better picture during that time. Until then, trade what you see, not what you think.
So it’s been nearly 4 months since I last updated this post and in that time Apple has decide to do a 7:1 split of their stock. All that really means is that for every 1 share that existed as of June 9th, 7x now exist. So now instead of Apple trading at $700, it’s trading at $100.
Speaking of $100, take a look at the stock. I basically made two predictions. We’d either see Apple shoot up with $700 (now $100) or down to $400 (what would have been under $60). If you look at chart below, you can see what has happened.
So what’s next? Well, this level is important and if Apple can break through it, I expect it to quickly shoot up to around $125. By quickly, I mean within a couple of months, possibly sooner given the iPhone 6 release coming up in a few weeks and the rumored “iWatch” to soon follow.
Again, this is all based on technical analysis and anything can change, but right now Apple looks quite strong. Funny, just over a year ago it was a dud in many people’s eyes and nothing has really changed since then. This is why I always tell folks to trade what you see, not what you think.
Update February 23, 2015
Well, well, well. Look at what we have here. My last update in August of 2014 suggested that Apple had a 70% chance of hitting $125 and as of about a week ago, it did. Today, it’s surging and trading above $130. We’re just a few days away from the end of the month and if Apple continues to trade upwards, I believe we’ll see 140s and possibly 150s soon.
One term you should understand about all tradable markets is momentum. Momentum means a lot, especially when you’re looking at it from a month-by-month perspective. Take a look at February’s current candle (the big green long one) and you’ll see that Apple has spent pretty much this entire month going up. Generally speaking, when you see these big long candles you can expect more of them to follow. Markets don’t usually abruptly reverse course. They go up (or down) and then start to slow down before they inevitably retrace a bit. Judging from this months candle so far, it’s likely we see more upside before $AAPL slows down and starts to pull back.
My prediction is that we’re going to see somewhere in the low $140s to mid $150s before that happens. Why that price? Well, just as before, I’m using Fibonacci technical analysis to project these levels. Just as I was correct in predicting the $55 reverse point back in 2013 and the $125 target a few months ago, I can put about a 60% chance that Apple will hit the target area of low $140s to $150s. How soon it will happen is a little difficult to tell, but I think it will happen within the next 3-6 months.
Image credit: iMore