Apple’s (AAPL) Remarkable Recovery

Aug 13, 2008: 1:52 PM CST

If you recently got disgusted and vowed never to look at a chart of Apple inc (AAPL) again, you missed a major move and locked yourself out of a valuable lesson.  Let’s take a look at what’s happened since Apple’s ‘disgusting’ price action after their earnings report and where we stand now.

Apple Daily (AAPL):

After Apple’s late July earnings debacle (amazing earnings but reduced guidance), price continued its downtrend and added even more pain to investors who hoped the earnings day would be the price bottom – as for now, it was indeed the bottom, but traders had to be very aggressive and nimble to enter at those prices.

Interestingly enough, Adam Hewison (Market Club) posted a video that day which provided a great educational lesson that taught when it was ‘ok to trade against the trend” and vowed that Apple at those low prices (around $150 per share) was a time that it was not only safe to do so, but encouraged.  It’s a fascinating video entitled “Apple Rebound” which was released on July 22nd – Adam also discusses how to use Market Club technology to find opportunities like that and the video provides hands-on application of their software (consider joining Market Club if you have not done so – it continues to be an outstanding and extremely affordable service).

That being said, Apple officially broke a downward sloping trendline last week and price has surged higher without looking back – indeed investors are repricing what they thought about the earnings report and the future of the company going into the ‘back to school’ and upcoming holiday sales (hey, Christmas isn’t that far away!).

At the moment, we’re retesting July highs and if we can clearly exceed $180 per share, it would add tremendous fuel to the bullish fire.  Also, note that Apple has been up yesterday and today – two days when the broader market traded lower (which shows us relative strength – as of this writing, the NASDAQ has turned positive on the day).

Why might the $155 per share level been the bottom of the daily downtrend (so far)?  Let’s peek at the weekly structure.

Apple Weekly:

I had posted earlier about this development, in that Apple was testing the rising 50 week moving average and could find significant support at that level.  Indeed that happened, and with the exception of the appearance of the sudden intraday gap down (long lower shadow in mid-July), price never closed beneath this level, meaning a low-risk entry could have been taken at this zone with a stop around the $150 per share level.  As you see, this trade is currently profitable and appears to have some ‘room to run’ higher.

With strength in Apple, this could be a boost to the NASDAQ index and could absolutely be bullish (or at least stabalizing) news for the market.

Let’s continue to watch this amazing and resilient stock together.

10 Comments

10 Responses to “Apple’s (AAPL) Remarkable Recovery”

  1. Anonymous Says:

    Kent Ramsay
    kentramsay@mac.com

    Apple did not commit a disgusting price action. It reported its results and offered conservative guidance, which makes sense for a consumer electronics company in a shaky economy. Everyone knows Apple does this every quarter. The disgusting action was the market reaction, which was pure stupidity. An incredible quarter and more to come – obvious to anyone with a brain. I sat on my stock knowing it would come back. I do think short traders try every day to use disinformation to hold the stock down. It is very lame. Apple will continue to shine, whether the market is smart enough to reward it – who knows.

  2. Mark Says:

    This has to be the biggest pump job I have read. Apple stock is now over bought and is against the trend line (do you know how to draw trend lines?).

    Give a guy a computer and they think they are stock pros.. good grief..

  3. DavidDT Says:

    Very nice reddish site, great explanations of “what has happened and why” – would you dare to speculate “what WILL happen”?

  4. Anonymous Says:

    Anyone who follows apple stock would have known that it’s drop to the low $150s was a bargain. It doesn’t require any mumbo jumbo technical analysis.

  5. Richard Says:

    Thursday and Friday will be feasting day for the bears.

    The 8/12/2008 Greg Michalowski USD JPY Chart shows a complete breakdown.

    So now the US Dollar will now be turning lower.

    The Dollar Rally that began July 14, 2008, as the yen carry traders sold oil to take profits, is now over.

    Consumer stocks like Apple and Autozone, the Russell 2000 value shares and all kinds of finanical stocks will be foremost in the bears sight and action, as these rose so srongly with the Dollar Rally.

    The investment application is to sell Apple on opening.

  6. Corey Rosenbloom Says:

    Kent,

    I should have clarified that the ‘disgusting’ phase was meant to refer to the price action, not to behavior by Apple and am glad to see your comment which clarifies that and provides background. I was shocked at the market action, and did see it as a long-term value, and those who entered strongly at that price were and probably will continue to be, rewarded.

    Thanks

  7. Corey Rosenbloom Says:

    Mark,

    I really don’t see how else a short-term trendline could be drawn. Apple has broken above that level and yes is likely due for a pullback/retracement, but trendline analysis is one of the simplest and effective methods of determining potential price moves.

    I’d be happy to hear what I’m missing, as I don’t have all the answers. I’m just trying to assess probability.

  8. Corey Rosenbloom Says:

    David,

    I suspect there will be a pullback from these high levels, which could come back to retest the $165 to $170 level, I suspect price will support there, and then price will travel higher. Right now, the price is at a ‘make or break’ which could form a failure test of the previous high, but if it convincingly breaks the high, it would be wise to invest because the trend would have confirmed back to up on the daily chart. I try to anticipate only the next probable swing and then adjust course as needed and look for ‘make or break’ moments, and then enter low risk trades.

    I wish I had foreknowledge 🙂

  9. Corey Rosenbloom Says:

    Anon,

    Agreed 100%. TA is great for assessing probabilities and low-risk ideas based on price behavior. Fundamental analysis probably called $150 an excellent value and thus should have been a buy. Quantitative analysis may have said something entirely different, such as enter long because of gross overextension. We’re all trying to do the same thing – assess the probabilities and then enter when we view them favorable, while keeping risk as low as possible so as to have longer term success.

    $150 may have been a major confluence point of multiple forms of market analysis, as evidenced by the price surge afterward.

  10. DavidDT Says:

    Quoted:
    “I suspect there will be a pullback from these high levels, which could come back to retest the $165 to $170 level, I suspect price will support there, and then price will travel higher. Right now, the price is at a ‘make or break’ which could form a failure test of the previous high, but if it convincingly breaks the high, it would be wise to invest because the trend would have confirmed back to up on the daily chart. I try to anticipate only the next probable swing and then adjust course as needed and look for ‘make or break’ moments, and then enter low risk trades.

    I wish I had foreknowledge :)”

    Very nice indeed kind Sir, I was, in a way, provoking you, the way you replied was the best possible, my hat off to you. I did have a “hidden agenda” indeed – I entered Sep165 long puts on Aug 13th based on DeMark setup (expected to be completed on Aug 15th) – closed today in the morning based on expectation of market reversing – sometimes technicians do find as you say high probability trades 🙂