AAPL is trading only 7% from a new all-time high, quite a ride compared to a year ago. AAPL is now up 17.5% in 2014, one of the major leaders for the overall market indices. With the stock’s move higher this week after the split, AAPL is now at its most overbought on the daily RSI (14) since March 2012:
This type of extreme overbought illustrates the aggressive demand for the shares over the past month. In the Feb/Mar 2012 period, the situation continued for quite some time, though AAPL was a much different company with a much higher expected growth rate back then. Today, valuation is much more reasonable while growth expectations have come down significantly.
The situation now could be indicative of short-term euphoria on the upside, while the medium-term might still be bullish for AAPL, particularly if the late July earnings report brings more good news on the sales front.
In last week’s MorningWord, Dan discussed his view on the stock ahead of the 7 for 1 stock split:
As for Apple stock, it has been a monster. If it weren’t for the impending 7 for 1 stock split scheduled for this coming Monday, I am hard pressed to think we would not have had a more significant “sell the news” reaction to a fairly incremental software update, without any new major product introductions.
The stock split is likely one reason for the current rally, perhaps also fueled by the broader market backdrop. AAPL has still not introduced any major product innovations, though management has certainly talked up expectations for the second half of 2014. So we have a stretched technical situation in the short-term, high fundamental expectations in the medium-term, and the stock split finally out of the way. The setup seems to suggest limited upside, though AAPL has held above the $92 level since last week’s breakout:
There is more significant resistance above at the psychologically important $100 level, which we don’t think will be as easy to surmount. However, the strong momentum of the recent move suggests that AAPL is more likely to consolidate when it pauses rather than selloff hard in the near-term. We might get more interested in a fade-the-strength trade if AAPL approaches the $100 level.