Friday, May 13, 2016

An Apple A Day Keeps Investors Away. Or Does It?

From the desk Of Sagar Nandi and Superior Profit

Investors should be scared of holding or buying Apple  (Thomson Reuters symbol AAPL.O) stocks at his time? So it seems the wisdom shared by many experts.

Here is the headline of an article published in a news site today 

"Apple's iPhone Nightmare Threatens Entire Stock Market"

Scary - isn't it?

​​But is it true? Will Apple bring down the Market? Did it do so in the past?

To be clear, I don't go around the web looking for such "news". This headline showed up in my  News Apps today morning. The news was apparently from Fiscal Times. I have no view on the news or the site. I did not actually read the article. It may be well written. May be not. I have no comment on that.

If I don't scout the web for news, where do I access my news that is needed for my investment decisions? My preferred source of news for investment is Thomson Reuters EIKON (which came with my Metastock Xenith license and I am loving it).

Now, when such an article did show up today, I looked up AAPL.O  using CUE At A Glance Template - the go to template for Superior Profit traders to look up a stock that catches their attention. Let us see what information we can gather from this CUE template. ​

Messages read from CUE Weekly Backdrop Template

Apple approached its all time high around Feb 2015 - point 1 in chart.  The Bearish Headwind caught the top very well this time (no - it does not catch the top so well every time - when it does not, one may exit with Small Stop Loss; that is Superior Profit Way of trading on Headwind signal).

How do Superior Profit traders use Headwind signal in Weekly chart? It may be used to book profit on Longer Term Investment positions or tighten Stop. It might also be used to start watching out Daily Hop On chart for a Reversal Trade Entry.

After Feb, 15 Apple mostly went sideways for five months. And then started sharp decline in July 2015 at point 2. Between Feb and July of 2015, Apple reached its highest price of about 134.

In Aug '15, Apple hit the then Low of about 92. In just two months from Jul to Aug Apple had come down from about 132 to 92. About 30% drop in the stock that is the biggest constituent (11.77% as today) of NASDAQ Index. 
Did NASDAQ also drop? Yes. It did. But more on that later. Let us read the At A Glance Template first.

In Nov '15, point 4 in chart, Apple recovered strongly - not quiet reaching High of point 2. And then dropped sharply again. Whereto? To around 92-93 range. The exact same Low made at point 2. That made it a Double Bottom. The Headwind Bullish signal caught this bottom pretty well.

In Apr '16, point 6 in chart, Apple made another Lower High and fell down.

In the last bar in the chart on the right edge, point 7,  Apple has taken out the Lows made at points 3 and 5.

The Weekly Candle Backdrop color is Bearish (magenta).

It has fallen 30% from the top.  Better time to Short Apple (or book profit on Long position) would be at points 2, 4 or 6. It may be bit late to Short now based on Weekly chart.

Messages read from CUE Daily Hop On Template

Having gone through Weekly Backdrop, let us have a quick look at the Daily chart. This is a magnification of what was going on in Weekly chart. In Daily chart, we are looking at Apple through Hop On Template - the template where majority of Long Term or Swing Trade Entry decisions are usually made.

​We can see two Headwind signals at point 8 and 9 in the Hop On Template. How does on use these signals on Daily chart? It is explained in the Superior Profit Books that you can read at Education Center.

Broadly, subject to the guidelines mentioned in Superior Profit Trade Signals book (or a systematic approach that a trader has fine tuned for himself or herself), this may be used to take a Trend Reversal Swing Trade. It might also  be used to book profit in existing Trend Following Swing Trade position or to tighten Stop. The Headwind signal does not necessarily mean that the primary trend will reverse. At point 8, the Headwind Reversal trade, if taken, could make either small profit or small loss depending on how one entered and put Stop and Target. At point 9, the Reversal Trade would make massive profit as Apple fell very sharply from that point on. This is how - sometimes - Headwind may result in windfall gain for the trader.

At the right edge of the Hop On chart, at point 10, Apple is below Lower Boundary.  In clear downtrend.

From the Movement indicator, point 11 on chart, we see that Acceleration and Speed (the top two green dots respective) have turned Bullish (green). Momentum (the lowest dot) is still Bearish.  This is little information to be audacious to enter a Swing Long Trade; at least a Standard Superior Profit Trade as mentioned in Superior Profit Trade Signals Book. Once could of course make an improvised trade if one desired. Might be a Swing Trade or a Day Trade.

That is all good reading from the At A Glance chart. In summary, Apple has fallen a lot. Now at the Low formed in earlier Double Bottom. If price holds, it might form a Triple Bottom. There is no obvious Long or Short trade signal right now in Superior Profit standard way of trading.

Did Apple really bring down the Market in the past?

Now - let us come back to the article that caught my eye. Can Apple bring down the market? We don't know what will happen in future - but we may look into what happened to NASDAQ Index (we will use QQQ.O - the NASDSQ ETF for this purpose) when Apple dropped heavily in last twelve months. We will use Metastock Xenith to look into this.

Comparing Apple and QQQ ETF's past 1 year performance


In the snapshot above, the numbered points roughly matches the number markings on the At A Glance Template above.

A side note worth mentioning. As you may observe, the "Double Bottom" formed between points 3 and 5 in Apple At A Glance seems to be missing in the comparison snapshot here. Why so? That is because this is a line chart and not a Candle chart. The bottom of point 5 was a day when price recovered sharply from the Low by end of that day. Thereby erasing the Low from line chart. Candle charts show such Lows and Highs clearly - no information is lost. That is why we use Candle charts in CUE System.

Now, back to our comparison. What may we infer from the above snapshot?

Between points 2 and 3 in comparison chart, both Apple and QQQ fell significantly. Though QQQ fell less than Apple. One might be tempted to think that Apple "brought down Market". Is that really so? What happened next?

At point 10, Apple is down significantly. But QQQ is holding pretty well.

Overall in last one year (duration of the comparison chart), Apple dropped by more than 27% whereas QQQ dropped by less than 2%. Hardly a proof that Apple "brought down the market".  And if Apple could not bring down even the tech heavy NASDAQ, how will it possible bring down overall broad market as represented by SPY or DIA?

Expert opinion in sites and media may lead us to believe that Apple can and does bring down the market. But at least from last one year's data when Apple fell significantly, we have no poof of that.

How may we use this insight?


Several ways.

Firstly, and most importantly perhaps, we learn to trust our eyes and systematic data driven analysis more than media opinions. With today's tools, we - main street people - do have the ability to do that with few simple keystrokes. And CUE Charts helps me do that in matter of minutes usually.
Secondly, Market may fall. Indeed there is some sign of Market weakness - you may refer to the Broad Market Internals Study that shows this weakness.  And Apple may fall as well for its own reason. However, that would be more rationally interpreted as "Some reason brought down market. Some reason brought down Apple". Rather than "Apple brought down Market". That is the Superior Profit Trader's conclusion from the analysis above.

Thirdly, Superior Profit Traders keep this information / insight in mind when investing and trading. Broad market study may not help to pinpoint entry / exit of a specific stock. However, it may provide some valuable background information that helps traders choose a trade or stand aside. For example, a trader may decide to trade only when the trade set up is aligned with  Broad Market Signals. And stand aside if Broad Market and the stock of interest are showing conflicting signals. You may find other ways to use the information of course :)

Any trade-able idea on Apple? 

What if Apple holds the Low of around 90-92? If Apple comes above that level, it will form a Triple Bottom. And will also form a Fake Downside Breakout. Luring Short sellers in only to trap them. If that happens and if that is accompanied by additional signals to take a Long position, one might take it. For now, I don't see an Entry in Apple.

What about your analysis? What is your system telling you?

​Sagar
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