Apple Stock – Lessons Learned – Moving Averages Strategy Applied

Apple stock continues to fall lower and today it fell through the 200 day moving average confirming the bear trend in the stock. But Apple Stock marked a huge opportunity for investors through using options to buy and sell calls as well as Put Selling strategies while the stock was in a long uptrend. Like all stocks, Apple Stock eventually had to hit a high point and begin to fall back to find and test support. The problem for Apple Stock is that this support was far below where it was trading.

There are many reasons for Apple Stock’s collapse into bear territory. Among them is the number of analysts who have pushed the stock daily to its investors as if it was a “sure thing”. These analysts continued as the stock pulled back to advise investors, readers and fellow analysts that each dip off its high was nothing more than a buying opportunity when in fact technically Apple Stock was so far beyond support that when the time came for the stock to test support, it would have to fall a long way to reach it.

Two things drive all stocks. Growing earnings and support levels. Stocks can rise rapidly on investor sentiment but in the end without growing earnings they will fall back. Analysts could have assisted their clients in Apple Stock and indeed in other tech disasters like RIMM Stock through using a very easy to apply moving averages strategy. Let’s first look at Apple Stock Support. This is a preview of a FullyInformed Members strategy article.

Apple Stock Support Chart

The belief that Apple Stock was just going to keep moving higher was not based on any fundamentals, technical or otherwise. In order for a stock to keep climbing there needs two things, growing earnings and investor confidence which builds support levels.

Earnings has not been met for 3 quarters now and the last quarter analysts had downgraded their earnings expectations and Apple Stock was still unable to meet the lowered expectations. Therefore the pillar of earnings was gone. Let’s look next at support levels.

For a stock to move higher there must be support from investors who bought the stock and believe it is going to move higher. They are therefore unwilling to sell but also are willing to put more cash to work in the stock. With a stock price above $600,, even 100 shares is $60000. 200 shares is $120000. I am sure you get my drift. Why the PE may be reasonable the price of the stock is such that a lot of the retail investors cannot afford to have their investment fall from $650 to $550. It isn’t the percentage of decline but the actual amount of money lost along with the psychological impact of watching your “expensive” stock fall day after day. So pillar number two is pulled away from Apple Stock – investor confidence.

Finally, how analysts thought this stock could go to $1000 or even higher without strong support levels and re-testing those levels shows a serious lack of regard for fundamental investing.

Apple Stock Support Levels

Apple Stock Support Levels

In the chart above I have marked the more recent support levels in Apple Stock. The red arrows indicate poor support and the green more solid support. When the $575 broke, Apple Stock had trouble falling a lot lower. Yesterday the stock closed at $580 and finally today with the Dow down over 300 points and the investor sentiment quite sour, Apple Stock has finally broken solidly through and fallen to $556 before a slight bounce higher. Basically Apple Stock has finally pushed aside any remaining investors who would buy more shares. The next level is around $522 but both it and the 4th level of $516 are poor levels with very limited support. From there support collapses back to a $100 lower.

Apple Stock and Lessons Learned

Apple Stock is a great example of a learning experience. All stocks no matter how hyped they are have the same characteristics. They need support levels to continually move higher. Watching CNBC this morning I was taken by the shocked look among the faces of analysts being interviewed as they kept repeating the old mantra of this being a $1000 stock and how investors should be too worried, yet. I noticed how many of them now added the words “yet” to their conversations. Even a few remarked that perhaps it was not “quite” time to buy more shares.

Apple Stock and $1000 Valuation

Whether Apple Stock will ever be a $1000 stock is not really the question for investors. Instead investors need to understand that earnings drive stocks and support levels are the only thing that can keep stocks from collapsing. Without either, investors should be aware that any stock including Apple Stock can fall a lot further.

An Easy Moving Averages Strategy To Use On A Stock Like Apple

As easy strategy for a stock like Apple …..

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