Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

AAPL – Apple Inc – – example Cup with Handle

with one comment

I sometimes get puzzled responses when I relate “Investor’s Business Daily” founder, Bill O’Neil’s, market aphorism that “All stocks are bad, until they’re ready to go up.”  A corollary saying is “Just because you like the company, doesn’t mean it’s a good stock to own.”  Case in point, Apple Inc.

In the past several years, Apple has been an enormous commercial success with its iPods, innovative computers, and iTunes. It was a tremendous cash-generating machine with outstanding earnings growth and a solid balance sheet.  In 2007, shareholders were handsomely rewarded, as the stock leapt from a ‘cup with handle’ technical pattern in April 2007 giving stock gains over 100% for the year. It culminated with a Christmas price peak over $200 that has not been overcome.

AAPL carved a deep base in the first few months of 2008, dropping over 40% from Point A to Point B.  It’s normal for high beta market leaders to correct more than the overall market, but 40% is about the maximum decline that’s acceptable in building a base digesting big prior gains.   AAPL charged up from B to C, and formed a typical consolidating handle.   The proper buy point at Point C, but only if the stock charges past C in heavier volume.  Waiting for such a movement, and not getting in too early,  puts the odds in your favor of fresh gains.

 

 

Why not try to get in earlier and try for bigger gains?  Look at any price point after C.  That, in a picture, is why.  It may indeed rally from Point D, but any price gains have to chew through all of the holders that bought in the prior two years at prices from $100 to $200 that will sell as the price advances.  Any stock gain is hindered by a flurry of orders of “Just get me out at what I paid.” That’s a textbook picture of upside resistance, particularly given the number of novice investors flocking to a brand name such as AAPL.  

Why bother buying stocks that have to fight battles through the next $100 in price?  Keep the bulk of your powder dry until the odds of success are in your favor.

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Written by heyercapital

October 21, 2008 at 8:31 am

One Response

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  1. Over on my Sugar Mountain Farm blog on the Dark Stripes post you asked about the taste of pig stripes and boar taint.

    The stripes on the piglets disappear and by the time the pig is a large grower it will just look like other pigs. I haven’t noticed any difference in flavor in striped pigs vs non-striped.

    On the boar taint, we’ve now slaughtered a boar as old as 30 months of age – he was delicious and had no sign of taint. He was also huge and eaten by a very large number of people so that gives a nice large sample set. We’ve also slaughtered a very large number of finisher boars who were about six months of age. All of them tasted most excellent. I will continue to eat in the name of science… 🙂

    On the topic of stocks, I find them odd, especially in the case of Apple. I buy and use Apple computer products. They’re great. Apple makes a regular profit and continues to increase its hold on the computer industry, MP3 players, phones, music sales and now video and TV show sales. They’re doing well and have cash in the bank. The stock market always seems a bit disconnected from reality to me. I just don’t get it. But, then my only stock is grazing my other asset. I don’t own the paper kind. *shrug*

    Walter Jeffries

    October 29, 2008 at 3:17 pm


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