Rotten Apples

• Posted by Greg Harmon
• on February 28th, 2013

It is month end and so time to take a longer view. And as the calendar suggests, well after the peak picking season, the apples are starting to go from looking bruised to rotten. All of the apples, including Apple stock, $AAPL. The Monthly chart below shows at least 5 reasons that this stock should be left in the backyard to rot some more.

The first is the break down below the ascending wedge. This carries a target back to the 200 area. That does not mean it gets there, and it did have a false break out to the upside in the last quarter of 2012. So maybe this one fails too. But it is a check mark in the downside column. The second is the Elliott Wave depiction. After a 5 Wave Impulse Move higher it is entering a corrective Wave. This is really bad news as Wave V was extended and that according to Prechter in Elliott Wave Principles, leads to sharp reversals. He suggests back below Wave II. This does not seem possible, but still another check mark in the downside column. The third is that price has fallen below the 20 month Simple Moving Average. It has been on the high side of the 20 SMA on this time frame since 1998 with two exceptions. On previous breaks below it retraced 65% lower (20 to 7) and 43% lower (142 to 81). Even a modest 25% move lower from the recent break at 500 would take it to 375, far above the average 54% move lower to 230. Another check to the downside. The Relative Strength Index (RSI) is the next weakness. Trending lower it still has more room down to the previous low reversal points at 40. Finally the Moving Average Convergence Divergence indicator (MACD) still has a long way to go before it is even close to the 2007 high level.

I’m sure a post with three potential targets, the best being 50% below the current price, will not be popular with Apple fans. And to be honest it seems unlikely right now. And yes I know about all the cash and the low PE ratio. But there are still far too many checks in the bad side of the ledger to own this stock on a long term basis at this point.

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Dragonfly Capital Views Performance Through February 2013 Expiry

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