If anyone has been watching Apple’s stock these days, you would have noticed that it has fallen significantly from it’s all time high of $705.07 a share on September 21st. At its current level around $630 a share it has dropped approximately 10% in the span of a few weeks.
This is due to a few factors. The company ran into some supply issues in the first few days of the iPhone 5 launch and initial sales numbers did not meet the lofty expectations of some analysts. Add in the Apple maps problem where landmarks were not located at the correct coordinates and investor sentiment was bound to cool.
With a whopping 27 “buy” recommendations and 23 “outperform” recommendations from analysts, expectations for the stock are at stratospheric levels. Only 6 analysts believe investors should either hold or sell shares of apple. The stock’s PE of around 15 is quite reasonable for a tech company but when everyone is screaming buy, sometimes you should be a little more cautious.
For more information on how Analysts rate stocks, take a look at my review of Full Of Bull and pick up a copy of the book! Wikipedia also has an article on financial analysts.
Apple shares usually run up in advance of a big announcement like the iPhone 5 and this time was no exception.
On September 10th, 11 days before the release date, I decided to take some profit by selling half my stake in Apple for a 93% gain. I let my followers know on Twitter:
To understand why I chose that day, let’s look at the chart further below.
RSI had been hovering over 70 for around 4 weeks, this indicates that the stock is in overbought territory.
Full Stochastic Oscillator (Full STO) – the bottom most part of the chart
STO had also been hovering over 80 for several weeks which is also an indicator of the stock being overbought
Moving Average Convergence/Divergence (MACD)
On September 10th a negative technical event occurred when the stock’s MACD crossed below the signal line. Take a look at exhibit “A” on the chart above to see where the black line crosses below the red signal line.
Time To Take Profits
Given the big gain I was already sitting on, the fact that the stock seemed to be overbought for quite some time and the negative MACD crossover, I decided to take profits and sell. There’s no harm with ringing the cash register!!
Now that it’s been over a month since I sold, how did I do? As you can see from the chart, shares of Apple dropped a little further but then continued to rise right up to the iPhone 5’s release date of September 21st. After that however, the old saying “buy on rumor, sell on news” kicked in and the stock started to drop.
Timing the stock market is a huge challenge and hardly anyone gets it perfect. I am quite pleased with my performance for an amateur!
Where does the stock go from here?
If you take a look at the chart again and find exhibit “B”, with a reading under 20, the stochastic indicator is now saying that the stock is oversold. This means that sometime in the near term the stock may reverse its decent and rise again. While I think there may be more downside to go, a stock like Apple won’t stay down for long. I still have half my position in Apple that I’m holding on to for the time being.
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