Working Money magazine.  The investors' magazine.
Traders.com Advantage

INDICATORS LIST


LIST OF TOPICS





Article Archive | Search | Subscribe/Renew | Login | Free Trial | Forgot ID?


PRINT THIS ARTICLE

STATISTICS


AAPL Bull Market Topping

11/28/11 10:27:11 AM
by Alan R. Northam

Statistical analysis shows Apple Inc. in a long-term topping process, whereas the shorter-term analysis shows that Apple has already reversed downward.

Security:   AAPL
Position:   N/A

Figure 1 shows the daily price bar panel for Apple Inc. (AAPL). This panel shows the 200-day linear regression trendline (solid blue line) along with the upper 1 sigma channel line (red dotted line), the upper 2 sigma channel line (red solid line), the lower 1 sigma channel (green dotted line), and the lower 2 sigma channel line (solid green line). Besides their statistical importance, the red channel lines represent resistance lines and the green channel lines support. The bottom panel shows the on-balance volume (OBV) indicator. The top panel is that of the linear regression slope indicator and the next lower panel shows the R-squared indicator.

FIGURE 1: AAPL, DAILY. This chart shows the daily price chart of Apple along with its 200-day linear regression trendline and associated channel lines. The top panel shows the linear regression slope indicator followed by the R-squared indicator in the next lower panel. This chart also shows the OBV in the bottom panel.
Graphic provided by: MetaStock.
 
The price bar panel shows that from February through November, price has moved within the confines of the upper and lower 1 sigma channel lines, indicating a strong uptrend. The one exception is in June, when price moved down to the lower 2 sigma channel line in an extended correction.

The linear regression slope indicator in the top panel provides more information about this supposed strong uptrend. Note that this indicator is starting to roll over at a lower level than when it rolled over in the February to April time frame. This sets up a linear regression slope divergence whereby the slope of the linear regression trendline is starting to become shallow, while price continues to make higher highs and higher lows. When divergences occur they normally do so just before a change in trend, so this current divergence is a warning of an upcoming change in the trend of AAPL from a long-term uptrend to a long-term downtrend.

The R-squared indicator in the next lower panel also shows that it is now lower than in March. This is an indication that the strength of the uptrend in AAPL has been weakening, while price has remained between the upper and lower 1 sigma channel lines.

The bottom panel of Figure 1 shows the OBV. This indicator has now made a new lower low, indicating selling pressure.

While the long-term trend appears to remain in a strong uptrend, the underlying condition, as identified by the supporting indicators, show that the long-term trend of AAPL is in a topping process.

Figure 2 shows the upsloping 50-day linear regression trendline (solid blue line) along with its upper 1 sigma channel line (red dotted line), its upper 2 sigma channel line (solid red line), its lower 1 sigma channel line (dotted green line), its lower 2 sigma channel line (solid green line), and its lower 3 sigma channel line (dashed green line). Besides their statistical importance, the red channel lines represent resistance lines and the green channel lines support.

FIGURE 2: AAPL, DAILY. This chart shows the daily price chart of Apple in the lower panel along with its 50-day linear regression trendline and its associated channel lines. The top panel shows the linear regression slope indicator followed by the R-squared indicator in the next lower panel.
Graphic provided by: MetaStock.
 
In addition, Figure 2 shows the daily price bars breaking downward below the lower 3 sigma channel line in early November, signaling a reversal in the intermediate-term trend from up to down. Upon breaking down below the lower 3 sigma channel line, this line of support turns into a line of resistance. During the next five trading sessions, price retested this new line of resistance, and after a successful retest, price began its selloff.

The linear regression slope indicator in the top panel also shows a divergence at the intermediate-term trend warning of a change in trend. Note that in October, the linear regression slope indicator made a lower high compared to August, while price continued to move higher during this period. Further, note that in late November the indicator moved below its zero line to signal the actual reversal in trend.

The R-squared indicator measures the confidence in the trend and its strength. When the R-squared indicator moves above its critical level, it indicates that there is a 95% confidence level that the trend will continue. Note that on November 23, this indicator moved above its critical level to indicate that there is a 95% confidence level that the new intermediate-term downtrend will continue. Therefore, we should expect price to continue to make lower highs and lower lows.

The R-squared indicator also measures the strength of the trend. As long as this indicator continues to move in an upward direction, the strength of the new intermediate-term downtrend will continue to strengthen.

This statistical analysis has shown that the long-term trend of AAPL is in a topping process. This analysis has also shown that the shorter- and intermediate-term trend has already reversed downward. Further, the analysis of volume has shown that price is currently under selling pressure. As a result, price should continue to work its way lower, forming lower highs and lower lows, while ultimately completing the long-term topping process and reversing the long-term trend down.



Alan R. Northam

Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.

Garland, Tx
Website: www.tradersclassroom.com
E-mail address: inquiry@tradersclassroom.com

Click here for more information about our publications!


Comments or Questions? Article Usefulness
5 (most useful)
4
3
2
1 (least useful)

PRINT THIS ARTICLE





S&C Subscription/Renewal




Request Information From Our Sponsors 

DEPARTMENTS: Advertising | Editorial | Circulation | Contact Us | BY PHONE: (206) 938-0570

PTSK — The Professional Traders' Starter Kit
Home — S&C Magazine | Working Money Magazine | Traders.com Advantage | Online Store | Traders’ Resource
Add a Product to Traders’ Resource | Message Boards | Subscribe/Renew | Free Trial Issue | Article Code | Search

Copyright © 1982–2021 Technical Analysis, Inc. All rights reserved. Read our disclaimer & privacy statement.