September 24, 2013 (6:15 pm)
After writing a post on June 20 (see the post here), we took a three-month break from updating this site. We continued to provide charts to our Twitter followers, but largely strayed from the larger, more complex analysis that is impossible to conduct in 140 characters. So we wanted to review our last comprehensive analysis on Apple and the broader markets.
***FROM JUNE 20*** Heading into its WWDC, we laid out three charts with explanations as to why we believed shares of Apple would rise during and after the conference. The rising MACD and bounce off the 50DMA: wrong. The potential inverse head and shoulders: wrong. A bullish triangle on the weekly chart: wrong. Clearly, we were wrong on all fronts here, as the shares continued lower and reached as low as $408 this morning.
We believe the tide is turning, however. We’ll lay out a series of charts and historical comparisons as to why we remain bullish on the shares. Three28Capital does not recommend very near-term options plays – it’s simply gambling. But for those with an intermediate- to longer-term timeframe, we believe it’s a great opportunity to pick up shares or options in Apple at these levels. Here’s why:
1. Daily Chart: Bollinger Bands and RSI. The chart below is, in our opinion, the most powerful and meaningful of the charts we’ll explore. First, the daily RSI support (horizontal blue line) has been an extremely accurate indicator. The RSI is now sitting firmly at that support. Second, a meaningful drop (not just a few cents, but multiple dollars) below the lower Bollinger Band has proven to be a very useful data point. Shares of Apple have traded well below the lower Bollinger Band for the past three days. You can see the reaction to either of these “buy” indicators on the chart below. Notice that when both indicators flash “buy” at the same time (which is the case today), we’ve seen the following rallies:
- Jun 2011: $90 (one month)
- May 2012: $55 (two weeks)
- Jan 2013: $50 (two weeks)
- Mar 2013: $50 (three weeks)
- Apr 2013: $90 (three weeks)
***SEPTEMBER 24 UPDATE***: Here is what the chart looks like today. Clearly, for those with “an intermediate- to longer-term timeframe”, our $408 recommendation price was a fantastic time to buy.
***FROM JUNE 20*** 2. Hourly Chart: RSI. Since the September top in shares of Apple, the green and red horizontal RSI lines below have acted as very accurate buy and sell indicators. Shares are now trading below that important 20 RSI level. We expect a retracement of this pull-back over the coming days and weeks.
3. Bollinger Band Compression: A Historical Comparison. We’d classify this one under the “interesting” category (and not necessarily, but potentially, meaningful). The last time the Bollinger Bands were as compressed as they got in early June (which was a width of $22.50) was – coincidentally – in early June 2011… just two days apart between the years. What’s interesting is to compare the subsequent price action. In June 2011, with the BBand width at just $21, the shares dropped nearly 6% over the coming 7 trading days, with capitulation selling to a level well below the lower BBand.
Contrast that action to today (note that the chart below was as of yesterday’s close). With the shares trading as low as $408 today, that denotes a 6% drop over the past 7 trading days. And don’t forget the capitulation selling we’ve seen today to a level well below the lower BBand. After that capitulation in June 2011, there was a dramatic rally of 30% over the following four weeks.
***SEPTEMBER 24 UPDATE*** See an updated chart of the aftermath of the Bollinger Band compression below. Although there was some remaining downside pressure, the shares bounced over $100 from our recommendation price over the following 7 weeks.
***FROM JUNE 20*** 4. QQQ (NASDAQ) Long-Term Support. Another important data point when analyzing Apple is to consider the NASDAQ index (QQQ). The chart below is extremely important. With this (what feels like) capitulatory selling, the QQQ saw quick and intense selling almost in a vertical decline. It stopped right at the long-term support level that had marked two previous (and important) peaks over the past year. That support firmly held, and the QQQ’s have since held above that support. This is meaningful price action, and we expect a retracement of the pull-back to begin shortly.
***SEPTEMBER 24 UPDATE*** Our thesis proved 100% correct. The QQQ held exactly at the long-term support line and a full retracement quickly ensued. See below for the updated chart. The index has gained 13% since our call of an imminent bottom.
***FROM JUNE 20*** 5. VIX Buy Indicator. We’ve discussed this one multiple times. When the RSI on the VIX (general market volatility indicator) get up to the red horizontal line, it has historically acted as a very accurate “buy” indicator. It signals that the volatility and fear is reaching a peak, and that the market is likely to turn soon.
6. NYMO Extreme Low. When the NYMO hits the very overextended -80 level, we consider the “buy” signal to be met. With the continuation of the sell-off late this morning, we have no doubt that the already oversold NYMO is continuing lower (chart below from yesterday’s close). This is another important and accurate market “tell” that we watch on a weekly basis.
***SEPTEMBER 24 UPDATE*** As we had expected, since the NYMO has been such a reliable indicator, the broader market saw a strong rally after the oversold NYMO indicator.