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CYCLES


Can AAPL Make A New High?

04/25/12 09:17:38 AM
by Donald W. Pendergast, Jr.

Price cycle analysis correctly anticipated the recent 11% decline in shares of Apple Inc. So what are the cycles in this stock predicting next?

Security:   AAPL
Position:   N/A

The recent selloff in shares of Apple Inc. (AAPL) might have been an unexpected and highly unpleasant surprise to long-term shareholders (not to mention those who bought positions in this high-flying tech issue over the last month or so). But for those who were relying on leading technical indicators such as price/money flow divergence and price cycle analysis, the decline was widely anticipated, even though the exact timing of the start of the plunge would never have been called exactly.

Traders and investors using these two forward-looking styles of chart analysis could have been able to possibly profit from the pullback or at least have been given early notice that a trend reversal was due (or even overdue), thus better helping them to protect their portfolios from needless drawdown. Here's the current cyclical analysis for AAPL, using the stock's daily chart (Figure 1).

FIGURE 1: AAPL, DAILY. AAPL bounced higher from its 80-day future line of demarcation, but it still needs to gain more traction soon if it is destined to make it into the red TP (time/price projection) zone as anticipated.
Graphic provided by: Sentient Trader.
 
It's understandable that investors and traders all desired to get a piece of the action during AAPL's recent ascent from 370.00 to 644.00, which happened in a mere 4.5-month period -- and with the media frenzy surrounding AAPL's newest product releases, it is little wonder the stock continued to leap higher, week after week, with only minor pullbacks along the way.

Technicians know, however, that every strong rally will eventually terminate, and the wise interpretation of price cycle and money flow analysis can better help them to stay ahead of the curve as they attempt to fine-tune entry and exit points in their favorite stocks.

I recently posted an article here on Traders.com Advantage concerning AAPL's cyclical status, and the stock ultimately did follow the general cyclical trajectory I had anticipated (a pullback into mid-April 2012), although its absolute cycle high preceding the downdraft took place a week or two after the time window it was expected to peak within.

Again, cycle analysis isn't as precise as a digital "yes/no" device, because you're dealing with a very chaotic entity -- the stock market -- that is driven by myriads of frequently random and unpredictable forces that affect stock prices. However, just as in the case of a stock's fundamental value, ultimately, good-quality cycle projections will usually prove themselves out.

Now that AAPL has pulled back by 11.11%, finding support about halfway down into its green time/price projection (TP) zone, the stock has begun to rally somewhat, which is not surprising after such a sudden drop. At the bottom of the selloff, AAPL successfully tested its 80-day FLD (Sentient Trader terminology for "forward line of demarcation"), which is essentially an advanced kind of support/resistance barrier that carries a lot of weight.

While this is good news for AAPL bulls, the stock still needs to rise up and out of that green zone if it hopes to still have a chance to make it up into the red TP zone by May 25, 2012, in a price range of 632.00 to 771.00. Several major cycles in AAPL are still in rising mode (the 19.9-week and the 40.8-week cycles, respectively), so there is still some powerful technical evidence to bolster the view that APPL may yet be destined for another surge higher.

Finally, note that there is some evidence of a future, major multicycle low starting to manifest in the early to mid-May 2012 time window (see red box at bottom of chart); if AAPL fails to gain more traction soon and instead starts falling again, look for the stock to form another tradable low in the next month or so. See Figure 2.


FIGURE 2: KEEP A SHARP EYE OUT. As of this writing on April 19, 2012, AAPL is down another 2.08% since the EOD chart of the stock was completed.
Graphic provided by: TradeStation.
 
At present, the Standard & Poor's 500's cyclic pressure bias is still toward lower prices, so be sharp on the draw if the recent swing low in the SPY (135.76) is breached. This is going to be a big-time line in the sand, one that could either be the relaunch pad for a new broad market rally or the trigger point to unleash a flood of pentup selling pressure.

If you're attempting to play AAPL, please stay aware of what's going on in the broad market indexes and use modest trade sizing until the broad market finally reveals its true intentions in the days and weeks directly ahead.



Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address: lineartradingsys@gmail.com

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