Despite the significant market decline on Monday, March 9, shares of Apple Inc. (AAPL) stayed above three value levels from my proprietary analytics. The stock set its 2020 low of $256.37 on Feb. 28, holding its semiannual and quarterly value levels at $262.02 and $260.88, respectively.
Given additional stock market weakness, the downside risk is to the annual value level at $253.68 and the 200-day simple moving average at $244.92. The upside trading opportunity does not point to new highs, as the stock gapped below its 50-day simple moving average on Feb. 24. The weekly chart ended last week negative as a warning for shares as this week began.
Apple has beaten earnings per share (EPS) estimates in 15 consecutive quarters, but the stock is not cheap. Its P/E ratio is 22.83 with a puny dividend yield of 1.07%, according to Macrotrends.
The daily chart for Apple
The daily chart for Apple shows that the stock has been above a “golden cross” since May 9, 2019, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices would follow. The stock then traded below its 200-day simple moving average between May 10 and June 7 as a buying opportunity. This signal followed the stock to its all-time intraday high of $327.85 set on Jan. 29.
The close of $293.65 on Dec. 31 was an important input to my proprietary analytics. The stock is above its semiannual, quarterly, and annual value levels $262.02, $260.88, and $253.68, respectively.
The close of $273.36 on Feb. 28 was also an input to my analytics. This resulted in my monthly risky for March at $315.78. This week’s risky level is $302.11.
The weekly chart for Apple
The weekly chart for Apple is negative, with the stock below its five-week modified moving average of $292.18. The stock is well above its 200-week simple moving average, or “reversion to the mean,” at $176.65.
The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 56.49 this week, down from 70.87 on March 6. At the January high, this reading was 94.00, well above the 90.00 threshold putting the stock in an “inflating parabolic bubble” formation. The bubble popped with a decline of 18.8%.
The latest bull market for Apple began in July 2016, when the stock held its 200-week simple moving average, or “reversion to the mean,” at $93.31. The gain from this low to the high of $233.47 set in October 2018 was 150%. Then came a bear market correction. From the October 2018 high to the low of $142.00 set on Jan. 3, 2019, the stock plunged by a bear market 39%. At this low, the stock held its 200-week simple moving average, or “reversion to the mean,” where the stock was a buy.
Trading strategy: Buy Apple shares on weakness to the semiannual, quarterly, and annual value levels at $262.02, $260.88, and $253.68, respectively.
How to use my value levels and risky levels: Stock closing prices on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual, and annual levels remain on the charts. Each calculation uses the last nine closes on these time horizons.
Monthly levels for March were established based upon the Feb. 28 closes. New weekly levels are calculated after the end of each week. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an “inflating parabolic bubble” formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered “too cheap to ignore,” which is typically followed by gains of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.