Are the Glory Days Behind Apple?

By L.A. Little  APR 23, 2013 11:00 AM

It's hard to imagine the tech giant will reach new highs anytime soon. Tonight's earnings will shed some light on this stock's future.

 


To say that Apple (NASDAQ:AAPL) has fallen from grace would be an understatement of epic proportions. To fall from $705 to $388 in a matter of a few months is not a correction; that is a blowout. Just take a look at the magnitude of the fall.


Chart from investools.com
 
To lose 45% of one’s market value in six months is not a correction; it’s a disaster.
 
But look closely at the chart. The losses bring Apple all the way back to where the company first took off from in a suspect manner. A breakout over a swing point high without volume confirmation is the definition of a suspect bullish trend. Those trends almost always eventually retrace to retest and attempt to regenerate higher, although most never go this long before retesting. The fact that Apple has finally done so brings up the second part of that equation: The first retrace to test a suspect breakout is almost always a buy when that retrace occurs after more than six bars. Well, the number of bars in this case is more like sixty than six. On that count, and because volume is shrinking on that first test, Apple is likely a buy on this big retrace on the intermediate term time frame. But how about the shorter term time frame?
 
If I switch time frames and look at just the short-term picture, you can see the same retest and regenerate principle in the opposite direction. The retest and regenerate zone on the way back up is only four bars in the making so far, which means that the Apple earnings will hit before the final six bars prints. That shows that we could easily blow back up through that area on earnings -- if they are not nearly as bad as feared -- and work our way back up to the anchored resistance zone that is farther up.
 

Chart from investools.com
 
If the earnings take us the other way (lower), when I look at the damage that has already occurred and think about this stock on a timeframe that isn’t measured in days, then I can’t see anything but a buy option at this juncture. Clearly the glory days are behind Apple and new highs are a stretch of the imagination, but it isn’t that hard to conceive of a $100 move higher over time. Folks, that’s roughly a 30% gain from these levels. It’s why I own Apple now and will likely add more if it dips yet holds the retest and regenerate zone on the earnings this evening.

Twitter: @tatoday
Position in AAPL