Is Apple Near A Bottom?

03/04/13 01:55:44 PM

by Matt Blackman

I've written four bearish articles about AAPL since November 2012. But lately the chart has been looking a lot less gloomy.

Security: AAPL
Position: Hold

Since peaking in September 2012, Apple bulls have suffered a bumpy, uncomfortable ride down the slope of hope. In my previous four bearish articles (see orange down arrows in Figure 1), I discussed why I believed that stock had further to fall. However, lately, the chart outlook has gotten decidedly brighter.

Figure 1 � Daily chart of Apple Inc showing distinct down-trend channel but note the declining selling volume in the lower subgraph together with the positive divergence exhibited between the RSI (middle price graph) and price.

Graphic provided by: TC2000.com.

First, a capitulation of sorts is occurring with regards to selling volume (see three circles in volume graph). Note that each time AAPL has dropped since December 2012, selling volume has declined which shows exhaustion in selling pressure.

Secondly, note the positive divergence between the RSI (middle subgraph) and price. Although AAPL stock broke uptrend support on March 1, the RSI did not (see magenta line in middle subgraph).

Figure 2 � Longer term chart of AAPL showing the large bearish Head & Shoulders top pattern in the stock with a minimum pattern projected target of $346.

Graphic provided by: TC2000.com.

On the macro-market front, another reason for feeling more bullish is that even though economic data in the U.S. and around the globe has been deteriorating as evidenced by the weak Q4-2012 GDP readings, the seemingly endless supply of quantitative easing by a myriad of central banks around the globe has done much to keep equity prices aloft. In lieu of a major correction, this government-mandated fiscal pumping should help keep a structural put under stock prices.

In other words, unless governments come to their collective senses all of a sudden and realize the risks of trying to print their way to economic prosperity, expect this flood to continue. So unless more skeletons pop out of the Apple closet, don't expect the minimum projected head and shoulders price target of $346 to be reached anytime soon.

One note of caution - unlike parabolic blowoff tops that can reverse in a heartbeat, bottoms are generally long protracted events which can take weeks or even months to form. As well, Apple stock still has a number of challenges ahead, the latest of which is a mandated re-trial of its billion-dollar plus patent case with arch rival Samsung. But given the changing technicals and as long as the stock continues to experience accumulation accompanied by a cessation of selling pressure, a bottom can't be far behind.

Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He is the host of TradeSystemGuru.com. Matt has earned the Chartered Market Technician (CMT) designation. Find out what stocks and futures Matt is watching on Twitter at www.twitter.com/RatioTrade

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Is Apple Near A Bottom?

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