Research Excerpts

APPL Key To US Market Direction

Posted on: Tuesday, November 25th, 2014

The following report, published on October 22nd (green text below), pointed out what we believed was an important bullish reversal in influential Apple Inc. (AAPL) and discussed its bullish implication for both the stock itself and the NASDAQ 100 (NDX) and broader S&P 500 (SPX).

Since that report a a month ago:

  • AAPL has risen by  $16.30 per share or 16%
  • NDX has risen by 314 points or 8%
  • SPX has risen by 130 points or 7%

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Research Report: What We’re Watching Today
Date: October 22nd, 2014
Asset Class: The US Stock Market
Title: Tuesday’s Rebound In AAPL Bodes Well For Q4

Conclusion, Investment Implications, Strategy

Yesterday’s 3rd Quarter earnings-driven spike higher in Apple Inc. (AAPL) has negated the bearish implications of its mid October breakdown, and now suggests that the stock’s larger July 2013 advance is resuming. If this is indeed the case, AAPL’s positive correlation to the NASDAQ 100 (NDX) indirectly suggests that this market leading index, as well as the broader US market, may also be resuming their larger bullish trends.

The US stock market still has some headwinds to overcome including weakness in Europe, investor fear/apprehension according to an elevated CBOE Volatility Index (VIX) and widening corporate bond spreads, and a lack of near term bullish conviction according to the latest ETF asset flows. However, this strong bullish reversal in influential AAPL adds to several already favorable metrics including too-bearish investor sentiment data, washed out market breadth, technically oversold conditions, and positive November-December seasonality, all which collectively indicate the likelihood of a 4th Quarter recovery in the US stock market.

Analysis and Rationale

Beginning in our October 16th report entitled The US Stock Market Decline: How Much Deeper? and in subsequent reports since then, we have been displaying and discussing a breakdown from 6 weeks of sideways congestion in Apple Inc. (AAPL) that had initially targeted a 6% decline to $92.00. The green highlights in Chart 1 below show that Tuesday’s (October 21st) earnings-driven spike higher in the stock carried it above the upper boundary of this congestion area, which suggests that its recent pullback is over and its larger bullish trend is resuming.

Chart 1

Chart 2 below takes a bigger picture look at APPL since 2012 and shows that Tuesday’s spike higher positions the stock back above its $100.75 September 2012 benchmark high, which is the major overhead resistance level that initially caused the sideways congestion since September and the mid October breakdown from it.

Chart 2

Tuesday’s rally, as long as its holds above a band of underlying support between $100.75 and $100.07, the latter which is AAPL’s 50-day moving average (a minor trend proxy), clears the way for significantly higher prices in the weeks and potentially months ahead.

We have been providing professional investors with a forward-looking, independent forecast of the US financial markets since 2005. Find out more about us here.