The whole report was published at on November 3, 2012.

Since the 2009 lows, Apple has been on a steady rise above its long-term rising trendline (dashed line). Toward the end of 2011, the advance accelerated (similar to a buying climax) and the stock moved away from its rising 40-week moving average (40wMA). Last September the stock reached a high of $702 (A), followed by a corrective move toward its 40wMA (currently at 588).

While there is extensive coverage of the stock in the media, including reports implying the drama of falling below the 40wMA, it is important to remember that it is the direction of the 40wMA that counts the most. In the case of Apple, the 40wMA is continuing to rise. Sometimes stocks dip below their major moving averages and then reverse to the upside. Having said that, roughly in four weeks the 40wMA will be replacing the numbers from 200 days ago, which may cause the 40wMA to start flattening.  

The first important level of support is at the $550-585 level, which is where the stock traded in June and where the support should come in. The second important level is the rising trendline that has been in place since 2009. A violation of this trendline would be a very negative development indeed.

Finally, the MACD, On-Balance-Volume and momentum indicators suggest the stock is in a very vulnerable position; therefore, extreme caution is recommended.

Weekly chart with the 40-week Moving Average

In sum:

  • Despite the recent weakness, the stock’s 200-day moving average is still rising.
  • The 550-585 level is critical because a decline below this support zone could trigger a decline toward the 475 and toward its rising trendline.
  • In the short-term a minor rally is possible due to oversold conditions.
  • The quality of the next rally will be the main determinant of the future direction of the stock.
  • A well-placed (and customized to individual risk tolerance) stop-loss is paramount to protecting gains.  


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