AAPL: Do iBuy or do iSell?

Michael Van Dulken  |

There has been much talk about Apple (AAPL) since its shares broke back above $515 at the end of October, completing a 50% retrace of the declines from highs of $700 in September 2012 to $390 in April/June 2013. Sentiment was boosted by market-beating returns of 44%, all of which delivered in the second half of 2013.

Strong demand for iPhones and iPads remains a decent enough driver for the Bulls and the recent official tie-up with China Mobile has opened the brand up to significant additional growth (750m subscribers). Nonetheless, has innovation slowed too much in a maturing smartphone market, where rival operating system Android still rules the roost? Ground-breaking product launches have been distinctly lacking since the unfortunate loss of the irreplaceable Steve Jobs. Or could the H2 2013 rally be justified soon by whatever the tech wizards in Cupertino have been working on?

Technically, since end-November, AAPL shares have been moving sideways ($530-570). The fact they have held above the $515 breakout and the $520 50% Fibonacci retracement of the falls from $700 is positive. If the 61.8% Fib retrace at $560 can be regained (tested in December, but served as resistance on Jan 15) it could revert to support, acting as a platform for the shares to make a full retrace to $700 over the course of 2014.

Nonetheless, all is not rosy. We note that the shares may have broken down from a rising wedge pattern (rising highs from last May, and rising lows from last June). This could signal a loss of momentum, a possible reversal and potential downside risk. Or a period of prolonged sideways shift. We also note that the breached rising floor of the wedge (breached Jan 3) has already served as resistance last week (Jan 15).

Another momentum indicator - MACD (Moving average, convergence divergence) – also shows a break below rising lows from November 2012, even going negative in the last few days. The fact that the MACD shows falling highs from August also highlights negative divergence with the price (price lows rising, momentum highs falling) which goes to support the possibility that the rising wedge is a reversal pattern. Declining volume peaks over the course of the wedge is also supportive. Note activist investor Carl Icahn buying more recently, but likely still just wanting to exert  influence to get some of that mammoth AAPL cash-pile paid out to shareholders, rather than being fundamentally bullish.

For now, so long as the shares remain >$515 they are in an uptrend. A break below this, however, could put them back in their late Jan-12 to Oct-13 depressed range $390-515. A break above $575 early December highs, however, would surely get the Bulls excited, potentially allowing the shares to run back on up to where they collapsed from 16-months ago.

Apple reports Q1 2014 results after market on Mon Jan 27. Could this be a catalyst? Bloomberg consensus puts expectations for Revenues +5.4% YoY to $57.5B and EPS +2.0% YoY to $14.1.

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