Chart of the Day – $AAPL Turnover

by Enis August 14, 2013 12:52 pm • Commentary

Apple is now above $500 for the first time since January.  First off, my broad thoughts on AAPL are pretty much the same as they were 3 months ago, when I wrote the following in a CotD post:

All 3 of those factors represent the first stage of a longer-term healing process for AAPL shares.  That’s the crucial point though – after such a steep decline, AAPL’s bottom is more likely to be a process rather than a one-time event.  In other words, I don’t expect a rally right back to above $500 in the coming months.  Rather, I expect the stock to be rangebound between $400 and $500 until the fall, at which point the 2014 growth catalysts start to look more interesting.
An innovative new product line (possibly including the long-awaited Apple TV?) could be the spark to get the shares moving higher again later this year.  But for AAPL stock to regain its mojo, innovation is now the key.  In the meantime, I don’t expect AAPL to make any major moves higher or lower, as traders arrange their bets ahead of the next product cycle.

Now that we’re approaching the new product line, and finally above $500, is this the start of a bigger move?  Bespoke played a nice chart game with its readers yesterday, where it inverted the chart of AAPL and asked if it looked bullish or bearish:

Yesterday, we posted the chart below and asked readers to choose based solely on the chart whether they would buy or sell the ‘mystery’ stock shown.

With nearly 500 readers voting, the results of the poll were overwhelmingly biased to the sell-side.  As shown to the right, 82% of readers who voted said they would sell the stock.  So what was the mystery stock?  The chart above is actually an upside down chart of Apple (AAPL) so far in 2013.  That being the case, if you are bearish on an upside down chart of AAPL, then if you turn the chart right side up, like Carl Icahn, you must be bullish on AAPL.

This is a great example of where perspective matters.  BUT, while I appreciate the chart game, I think it’s disingenuous to only look at AAPL’s performance in 2013.  Because the real concern for me for AAPL here is the longer-term chart, which includes all of the potential overhead supply from last year’s price action:

AAPL daily chart, 200 day ma in black, Courtesy of Bloomberg
AAPL daily chart, 200 day ma in black, Courtesy of Bloomberg

The 500-525 area has a large amount of supply from last year’s trading.  Moreover, AAPL closed 2012 at around 532, and has its earnings gap from January around 514.  In short, the stock has rallied about 10% in 3 days, but right into an area of significant long-term resistance.

We have generally traded AAPL from the long side this year, but the stock is now at a juncture where if my hand was forced (currently no position other than a short put spread position that’s close to full gain now), I would be a seller rather than a buyer here.  There are a lot of bottom pickers from 2012 who are likely counting their blessings to get out for close to flat above $500.