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$AAPL - The Most Important Chart on Apple - Bull & Bear Cycles

AAPL on the 3 key time frames is firing bullish:

Near term time frame (hours to days ahead): Bullish

Intermediate term time frame (days to weeks ahead): Bullish

Primary term time frame (weeks to months/years ahead): Bullish

AAPL has closed the week breaking an all time new high closing at $148.95. Even with AAPL trading at historic extreme overbought conditions it just continues further. This is why overbought conditions don't necessarily equate to selling or going short. They are a reference point to suggest that pullbacks begin to happen, but it also means that momentum is especially strong when you see record extremes.

This is why we don't short AAPL and were/are very much long early on. Apple is at historical extremes on the technical side of this rally and has been for some time but it still has far to go before we see the macro oscillators start to stall out and turn negative. The monthly big-picture oscillators have been bullishly in an upswing. We've heard lots of chatter from the bears expressing their fervor to short AAPL and that has just always been a bad idea when you see this kind of setup. There is a time to short AAPL if one must but we're no where near that kind of environment right now. AAPL is still very much in a strong bull cycle on the primary term time frame. The chart below is probably the most important chart you ever need to understand when it comes to knowing AAPL's major bull & bear cycles. See below:

Let me recap what that all's very simple. The most important indicators when you're discerning for AAPL's major bull & bear cycles are the following 5:

  1. Monthly Stochastics Indicator

  2. Monthly MACD Histogram Values

  3. Trading above/below the 6 & 12 month moving average

  4. Trading above/below a major ascending/descending trend line

  5. PRICE ACTION is the king indicator that needs to confirm everything above


1) Monthly Stochastics Indicator begins a bearish crossover (see chart above 2nd, middle panel) When you see the monthly stochastics (indicator in 2nd panel) in a bearish crossover (red line crossing BELOW the blue line), coming off a major rally/top then it means to get the F out of the way and let the stock go. Now this needs to be conferred upon with the other major indicators being discussed in 2 - 5

2) Monthly MACD Histogram Indicator: when you see the first positive increase from the month usually means that momentum is increasing as accumulation has floored the stock and there are more buy orders taking the ASKing price from sellers are higher values. When this starts to happenthere is a high chance for the increase in share price to form into an eventual uptrend off the bottom. Again, the other indicators working in confluence here needs to be confirmed. You can't simply rely on MACD histo. You have to look at the holistic view.

3) Monthly Moving Averages - 6 & 12 Month

When share price starts trading above the 6 (faster) & then the 12 month (slower) moving averages it means that sentiment has assuredly shifted as the stock stabilizes above a market vote of confidence

4) Major Trend Lines: trading above a major descending trendline off a bottom is also another signal that the weight of shares have now tilted to the long side. When you see the weight shift like this, it's now easier for buy orders to chew through supply. It means that the major bulk of share supply has largely been absorbed. Air gets thinner as a rocket climbs higher. The hardest part about takeoff is getting off the bottom. Massive share supply is one of the major reasons why stocks tank. Bullish directional changes occur when you see the share price climb above major descending trendlines or out of a major consolidation box.

5) Price Action: this is the KING indicator as we've always mentioned. Nothing matters most than what the price action is telling you. We can have every bullish indicator conferring with one another that a bullish move is about to happen but price action is the ultimate signal. In a bullish environment we'll see Price Action start to put up new highs and lower lows on the near term, intermediate term, & primary term time frame. Just remember that one down day does not make a trend. And inversely, one up day does not make a trend. It's how price cultivates over time

So we just layed out a recap of how to best interpret the chart above. In a bull environment you'll see all the above happen....and inversely, in a bearish environment you'll see stochastics start to rollover as the red line crosses below the blue line; MACD histogram will decrease in value from the month prior value and you'll see share price below the 6 month moving average and then the 12 month MA and Price Action will stall out & drop. That's a bear's the opposite of everything we've laid out in steps 1 - 5.

Now here with AAPL we are in a major bull cycle. So it means that pullbacks will be bought. Consolidation & corrections are an opportunity for new long entries.

So being long here has paid off. Now what we're currently scouting as for AAPL to get a reasonable pullback in which we can enter another long position. But notice here how important it WAS that we took our January call-spread when we took it. We didn't want to get into a sticky situation where AAPL ran off higher without us. Many who want to take a long position on AAPL right about now are tormented if they'd be buying some kind of top. That's why it was prudent to do our buying when we saw AAPL coming out of it's bottoming pattern back around $96 @ the low $100s. In the meantime, our current AAPL January 2018 110/120 call-spread is upticking higher currently trading around $9.10 representing a gain over 127.5% so far. Again for new Members just chiming in, this is a position that will reach a max value of $10 (difference between the 2 options strike) so long as AAPL closes in share price at or above $120 by January expiration. Since our cost entry was at $4 then a max value of $10 would represent a 150% gain so long as AAPL close at or above $120 by expiration. This is an incredible return for a very reasonable expectation that AAPL closes at $120 or higher. Chances are AAPL will be well above $150 by expiration. So we modeled a conservative call spread that was bear friendly in the event that AAPL & the market was in a bearish environment. We actually laid out several call spread options that ranged from conservative, to ultra conservative to moderately aggressive & uber aggressive , etc. We leaned for a call spread that was on the conservative side.

So here is where our call spread is currently trading at as you can see in your own accounts:

This the price that one could sell for in the open market as of now...Again the most this position will be worth is $10. It doesn't matter if AAPL goes to $300 by January 2018...this call spread can only be worth $10.

So today's market reaction to Apple's earnings report is one more piece of evidence to support the thesis that this low volatility environment continues on. Apple missed revenue expectations as iPhone sales declined to 50.7 million units, iPad revenue was -13%, Chinese sales dropped 14%, and guidance was lowered. Throughout the smartphone industry, upgrades are happening with less frequency and the trend has impacted Apple. In former times, this sort of bad news would have caused a knee jerk correction, especially from current 52-week highs. Thankfully for AAPL, these are not former times. The new normal in which central banks have killed price discovery is reflected in AAPL's breakout stock action. Knowing that stock action dictates sentiment, the financial media is left with no choice but to offer positive commentary. We would have liked a better buying opportunity (to add to our current AAPL position) because of Apple's miss but that's not happening in this environment. The bullish news on AAPL continues to ramp up which is what the media does in these bull cycles. Inversely when AAPL is in a major bear cycle every news publication is talking about AAPLs best days being behind it, how the company lost it's edge when Steve Jobs died and how they lost their ability to innovate. So please be aware of how these news cycles jump on the value proposition of pumping the news that is most clickable/readable/desirable "for the times."

The good news for Apple is that 1/5th of the company is growing. Services revenue increased 18% to $7.04 billion and revenue from the 'Other' category that includes Apple Watch, Beats, and Apple TV increased 31% to $2.87 billion. Tim Cook hopes to double services revenue by 2020. He also hopes for a return to iPhone growth when new models are released six months from now. Cook blamed the iPhone 8 rumor mill for weak sales. Walt Mossberg mentioned Apple has a lot riding on its next upgrade cycle and the iPhone maker will have to overcome weak industry trends in order to find success. We would add, the only way to restore double digit growth is to produce enough units. In the most recent holiday quarter Apple sold 78.3 million iPhones which means it will need to get up to 86.13 million units to achieve 10% growth. With expected new features including OLED screens and wireless charging for the 10th anniversary iPhone we hope Cook can deliver enough product...but that's a concern for another day. The main takeaway from this report is that the stock easily overcame a revenue miss and the narrative of future growth remains intact.

As to the events regarding the Fed meeting that happened Wednesday, the Fed left rates unchanged as it explained slower growth as transitory. Market expectations for a June hike rose to 94%. There is nothing to worry about with regards to Fed rate hikes as it has lost potency as a market moving variable. If anything, we see a renewed sense of confidence that Fed management has boded well. At least that's how the market has been voting. Now in the intermediate term however we still need to be BULLISHLY CAUTIOUS. Our earlier posts about AAPL undergoing a correction or consolidation lull of some kind is still very much being observed for. We DO think that this rally will eventually stall out for a near to intermediate term pullback. Eventually this ALWAYS happens. Like it has always happend. Short of curing cancer tomorrow, you can bet that AAPL will have a pullback cycle on the horizon. Timing it is unknown at this juncture. We will be able to piece it apart once the technicals give us evidence. Right now we don't have that. We have a few pieces of concern but nothing worth noting or sounding an alarm on at the moment. As you can see, one day does not make a trend. We had a few reversal days with AAPL before earnings an initial negative reaction with AAPL post earning the day after. Today it's reversed all that broke a new one bear day doesn't mean that we're promised a takes time to cultivate cause & unseam the top.

Right now, the action we've seen in Apple the past few days suggests the stock wants to test that key psychological level of $150. That's a major line of resistance for Apple because it puts Apple right at the mid-point between $100 and $200 a share. It's more psychological than anything else. And being within $2.00 of that level, I think Apple is gravitating toward it. But it is clear that there is an air of uncertainty and a lot to push between bulls and bears over the last five sessions. We have multiple dojis and multiple reversal bars and big up days. Apple's results were a lot like Microsoft's results and while Microsoft did continue to trend higher for the next few sessions after it reported earnings, it has now been on a slide for four sessions. It is still net positive since earnings, but you could see the same sort of uncertainty. See below:

We may see Apple make a push for $150 in the coming days, but go back to when Apple first crossed $140. You could see it took a lot of time and effort for Apple to get through the $140 area. It wasn't a simple breakthrough. Apple spent two months battling at the low $140's getting a lot of push-back each time the stock tired to progress forward.

Furthermore, Apple's valuation and attractiveness has diminished more so now that it is sitting at $150. At $150, Apple is not a stock that your big/smart money funds are buying hand over fist. They were doing that much much lower. At the $150 level the value proposition tilts more on the sell side...again we are not saying a Mega Bear Cycle is in the cards (as showcased in the first chart of this post). We're just talking about a pullback of some kind. So yes, at this $150 area the stock is more attractive to start unloading / reducing some. At & around this $150 level, it just presents a higher degree of downside risk. Apple is a stock that has crashed by 46% and 38% on two different occasions over the past four years. It has now risen by 70% in a year non-stop with only one 12% correction. And in the past 6 months AAPL has risen over 43% non-stop with a mere 3% pull-back in-between.

And so you have to figure that more and more people are going to see that as the stock approaches $150 a share here. Even the mean analyst price-target after revisions is sitting at $151. It is never a good sign when Apple surpasses mean revised price-targets. Think about what those price-targets represent. They represent what analyst, after seeing this rally and extrapolating the most bullish of numbers, have come up with in a bullish scenario. Clearly the price-targets back when Apple was sitting at $100 a share were total nonsense calling for $70 price targets. And we pointed this out. They reach extreme levels as the stock drops to extreme levels. But now as the stock has risen 70%, the stock has caught up with price-targets that have been revised (multiple-times) upwards. Apple reaching $150 is very similar to when the stock was reaching $90 a share. We're in very similar circumstances here. We're at the extreme end of the curve both above the 200-day moving average and 50-week moving averages. At $90, Apple was at the extreme opposite end of that spectrum. We're starting to see insanity price-targets like we saw with Apple. We had people arguing that Apple would see $70. Now we have analysts with $180 price-targets on Apple now. Th stock has pushed into record extreme overbought conditions and pulled back a mere 3%. So just keep that in mind. This is largely why we haven't initiated a new long position on AAPL when we did. For those who have been with us since the summer of 2016 you remember we were fleshing out the analysis why AAPL was likely to bottom and what that bottom environment looked like. We started pounding the table for why the stock was bottoming. You'll recall this post from July 25, 2016 titled: 3 Reasons Why AAPL Has Bottomed →

And we started getting into long positions right about here. We had 3 buy alerts from there. Our largest gainer is now our current AAPL spread holding our January 110/120 call spread as we're extremely confident that this position will be golden. This position was actually modeled as our "stock replacement strategy" where we sold our common stock back in the low $104-108 area and rolled that capital over to this call spread which has far greater upside potential, a 150% gain so long as AAPL closes at or above $120 by January 2018. For AAPL to exceed the gain potential on this position the shares them selves would have to reach $260 in share price for us to make a 150% gain in the common from the $104 level. With this call spread we're able to produce a 150% gain just by asking AAPL to simply be above $120 by January 2018. A phenomenal return & risk reward setup. This position is also our, "thank goodness I'm in AAPL" position. As mentioned, it's tormenting for sideline believers who want to buy some [more] AAPL right here. It's like the deer in headlights concept for many who want to buy up here.

Now, we will be discussing another strategy on AAPL if this low market volatility environment continues and AAPL resiliently shows some kind of immunity to a sell off. Like I said, it's NEVER happened in market history that AAPL doesn't pullback to at least a 8% to 14% in every bull cycle. So we're not going to fantasize about it. The odds are simply more favored for a near to intermediate term top starting sooner than later. Let me make very clear here that we're not trying to see AAPL top out and dump into a bear cycle...just a near to intermediate term pullback is what we expect. Based on historical human & market's truly a constant that always happens. For example a 10% pullback from here would be bring AAPL back down to the 2015 top around the $134 area. But then there the whole,"what if time is different" concept. This is the kind of thinking that tends to always become riddled with burden. Buffet being a major buyer of the stock & AAPL increasing the aggression of what has already been a very aggressive buy back program are all part of this low volatility & strong upswing. That and of course the improved earnings outcome that's slated in advance of the iphone 8 anniversary phone. So yes, for sure that's all part of this major bull cycle. But inevitably the stock will see a selling period that causes a pullback or consolidation lull....and that is the area where we'll be doing our next buy round on AAPL.

So more importantly we have to piece together via holistic analysis in helping us discern when that pullback is happening. As a side note, the other important bit of economic news was the 4th consecutive month of declining auto sales. When you combine Fed rate hikes on the horizon, declining auto sales, and an Apple revenue miss it represents a potential trigger for a market correction. The Dow's response? Flat. Low volatility remains the dominant trait of this market. But we are bullishly cautious right here. We will update Members with further evidence as it unfolds. Be patient and until then, enjoy your gains on that AAPL call spread.

Some of the greatest pearls shared by Jesse Livermore:

“Money is made by sitting, not trading.”

“The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money everyday, as though they were working for regular wages.”

“Buy right, sit tight.”

“Nobody can catch all the fluctuations.”

“There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”

“It takes time to make money.”

“Don’t give me timing, give me time.”

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