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Apple Picking

By: Erik Swarts | Tuesday, March 12, 2013
Apple Tree

What has become practically an "Apple-a-day" occurrence, we hear from some corner of the market - either an analyst, pundit, grandmother or guru, who makes an attempt to pick the - or a, low in Apple. And while we can appreciate a good pick as much as the next guy - we don't see a ripe one just yet. In the shadow of the bust, the fundamental rationale to own Apple today may look quite compelling. From a treasure trove of cash, to the underlying products even our two year old can navigate and enjoy. However, the simple fact remains - it has a broken spine. The backbone of which we speak is the great humbler of prognostics and man - momentum. You will often find her (the humbling gender) at work in the parallel universe, where price defies logic - on both the up and downside.

If our memory serves us, Apple diverged from an arguably already exuberant growth path directly after its visionary and genius marketeer passed away on October 5th, 2011. Over the next year, the stock (which just happened to be the largest public market cap company in the world, as well as the most widely held security by hedge funds) roughly doubled from the intraday low on his death. Did it make much sense based on the fundamentals of Apple's known and extrapolated market share or the underlying governing future of the company at the time? Certainly not - but momentum was at its back. The same market psychology and trend dynamics could be said for the oil comparative we have frequently used to presciently remain on the right side of the stock. Back in late 2007 as the equity markets were starting to cough out and the first signs of an economic downturn were becoming readily apparent, oil - the literal fuel for the economy, started its parabolic ascent. With hindsight 20/20, it was anything but rational and largely a herded stampede - spearheaded by hedge funds both large and small that were bidding the commodity markets to icarus heights and the US dollar to its secular low.

So it comes as no surprise, that the most recent signatures of one of the last large crowded canyons are leaving similar momentum footprints on both the front and backside of the parabolic face. This is largely captured in the final culmination phase and expressed with similar moving average profiles and a stubbornness towards the downside without much relief for retracements. For greater comparative purposes, the series was refitted to the cycle highs and normalized to reflect the final parabolic build.

Oil vs Apple
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To add further color, we took a quick check under the hood at the two previous parabolics (Microsoft & PetroChina) that roughly marked each respective cycle highs.

Three Peaks - Apple Petrochina and Microsoft
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Taking a look at how momentum built and drained from the two other mega caps - as well as oil in 2008, we find a few similarities and contrasts.

1999 Microsoft
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Both Microsoft and PetroChina broke-down roughly along similar timelines and with like price and momentum structures. Approximately 21 weeks to an intermediate low at their respective 150 week SMA's - and approximately 1 year to exhaust the down cycles. Each weekly low was also accomplished with successively lower RSI imprints.

2007 PetroChina
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In contrast, Apple is currently 25 weeks into the move with the previous low reflecting a positive divergence. However, the low to date was also presented - like Microsoft and PetroChina, at its 150 week SMA.

2013 Apple
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Like Apple, oil never quite came up for a breath on its way to a long-term low - some 32 weeks after its cycle high. This persistent selling pressure was reflected in a severely impacted RSI that eventually (on its fourth positive RSI divergence) made a long-term low.

2008 Oil
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For sake of comparison, we kept the same performance snapshot from the Apple/Oil comparative. As reflected in their price structures and long-term moving averages - Microsoft and PetroChina broke-down and bottomed along similar folds.

Boom & Bust
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Although not as severe a decline as Oil to date, Apple reflects the frictionless, albeit slower, one-way street lower. With that said, we would not be surprised if an intermediate term low is reflected - as in Microsoft and PetroChina - with a lower RSI imprint.

Boom & Bust - Oil & Apple
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Microsoft Petrochina Apple
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Where Apple eventually comes to rest for this down cycle is still uncertain. But based on both the oil and the two previous parabolic mega-cap comparatives - downside pressures should remain for some time.

Microsfot vs Petrochina
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As always - Stay Frosty - and careful picking. The fruit may still have a worm or three.

From the same folks that brought you - Fruit Salad, Apple Turnover and the Universal Law of Gravitation.

 

Author: Erik Swarts

Erik Swarts
Market Anthropology

Although I am an active trader, I have always taken a broad perspective when approaching the markets. I respect the Big Picture and attempt to place each piece of information within its appropriate context and timeframe. I have found that without this approach, there is very little understanding of ones expectations in the market and an endless potential for risk.

I am not a stock picker - but trade the broader market itself in varying timeframes. I want to know which way the prevailing wind is blowing, where the doldrums can be expected and where the shoals will likely rise. I will not claim to know which vessel is the fastest or most comfortable for passage - but I can read the charts and know the risks.

I am not a salesperson for the market and its many wares. I observe it, contextualize its moving parts - both visible and discrete - and interpret.

I practice Market Anthropology - Welcome to my notes.

Erik Swarts is not a registered investment advisor. Under no circumstances should any content be used or interpreted as a recommendation for any investment, trade or approach to the markets. Trading and investing can be hazardous to your wealth. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This is strictly for educational and informational purposes only. All opinions expressed by Mr. Swarts are subject to change without notice, and the reader should always obtain current information and perform their own due diligence before making any investment or trading decision.

Copyright © 2011-2014 Erik Swarts