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Can Apple Regain its Mojo?

Chad Karnes

Remember in 2012 when the only thing anyone could talk about was Apple?  Remember when its price was approaching $700 and "experts" were calling for $1100?

"Apple too Cheap, Deserves $1100 Price Tag: Pro" was a much discussed headline.

In 2012 everyone, it seems, owned Apple (NASDQGS:AAPL) stock.  That of course was the problem, and in hindsight it was a very crowded trade. 

Currently Apple's price is in the mid $400s and well below the "expert" analysts' average price targets (which last I checked was still up at $618 although price hasn't seen that level in over six months).  My guess is it is only a matter of time before those pros continue to chase price lower, ratcheting down those targets back in line with reality.  For more on analyst coverage (or lackthereof) of Apple see our recent article on the crazy psychology of Apple's groupies

The Apple Bubble 

Even after its extreme decline, Apple still represents around 18% of the S&P Technology Sector (XLK - News) and 13% of the Nasdaq 100 (QQQ - News),down from its peak of around 20%.  No doubt it still remains very important to the markets and many ETFs.  Google (GOOG - News), AT&T(NYSE:T), IBM (IBM - News), and Microsoft (MSFT - News) make up the remaining five largest companies in the XLK.

Apple is a wonderful example of how price, not fundamentals, is the only true leading indicator and can be used to help you get out of the way before disaster strikes.  The best way to follow price is through the charts and following the charts in Apple warned us of a trend change to down in November. 

In a research piece titled "Is Apple's Stock in a Bubble" written onOct 5, 2012 we warned readers along with the following technical analysis and chart: "Apple is in a decade long uptrend but if price were to fall below $600 that would be a sign the 4-year uptrend in Apple has changed to negative."

This breakdown occurred the next month in early November after peaking near $700,and there has been no turning back as investors continue for the exits as Apple has fallen another 30% from that $600 price breakdown.

Apple's Headand Shoulders and Breakdown

On March 6 we also published an article (found here) that looked at the shorter term chart of Apple, where we warned of the head andshoulders pattern that was playing out.   

But,we also noticed the strong area of support that was likely to bring in short-term buyers when price was flirting with $420.  "There is hope for Apple holders, though, asits price may finally find some support in this $400 price range as buyers from 2011 step back in to support (shown in blue)." The chart that accompanied that analysis is below.

What about Today?

In late 2012,right near its price peak, headlines such as, "Is this the golden age of Apple?" and "It's not too late to get in Apple" could be found everywhere.  Although certainly toned down today, similar headlines still continue concerning Apple's stock.  Here are just a few from this week.

"Apple,Favorite Tech Stock of Asset Managers"

"Could AppleTake more of Samsung's Money"

"Apple: Major Concerns Overstated and More than Priced In"

Although price has fallen 40% from its highs, sentiment toward Apple still is bullish,as shown by a glance at major headlines concerning the company.  This is not what you would expect to see aftera stock has already fallen 40%. 

From a contrarian standpoint, sentiment would need to turn bearish on Apple, before any sustainable bottom is likely reached.

Inthe ETF Technical Forecast published 3/24 and found at ETFguide.com, the below chart along with commentary, key price levels, and trade setups was provided to subscribers with the warning, "After bottoming at the red trend channel support line in late January and then againat the 2011 support zone in March (shown in blue), Apple has caught a bid and is very near its trend channel resistance (shown by the blue down arrow).  It is expected that this resistance will holdand Apple will resume its downtrend farther into the blue support zone where its head and shoulders target resides".

Apple is already down over 6% since that analysis was published aweek ago.

Not only is the public still holding onto their bullish slant toward Apple even after a 40% price decline, Apple's chart continues to follow the bearish script for its head and shoulders topping pattern.  When sentiment and technicals combine, the outcome can be extreme, which we are currently seeing with Apple's rapid price deflation.

Its head and shoulders pattern is a big warning sign that the Nasdaq (QQQ - News) and other equity markets such as the S&P 500 (SSO - News), Dow Industrials (DOG - News), and Russell 2000 (IWM - News) could also be setting upto follow it to the downside. 

The good news is there are specific price levels that will tell us if Apple's head and shoulders pattern is complete and the trend has turned back up.  These levels allowed us to call Apple's March bounce as well as the resumption of its downtrend more recently.  The charts have helped us get out of the way of Apple's decline even as most"expert" analysts remain bullish and hold onto a 40% and potentially greater loss.

At the ETF Profit Strategy Newsletter we provide comprehensive technical analysis on many major asset classes which boils down to actionable, easy-to-understand ETF analysis that includes support and resistance levels with potential targets and stop losses.  Updates areprovided every Sunday and Wednesday.

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