Apple Inc. (Nasdaq:AAPL): When to Buy the World's Hottest Stock

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Shares of Apple Inc. (Nasdaq: AAPL) are taking a breather, leaving many investors wondering if they've made an iBoo-Boo.

The hottest stock on the Nasdaq has fallen more than 4.6% as I write this since hitting a new intraday high of $526.29 on February 15, 2012.

Does that mean it's time to sell?

Perhaps, but first you should ask yourself why.

Apple Inc Stock Price History
(Nasdaq: AAPL)


If you're a long-term investor, there's a lot to look forward to. Apple is much more than a brand; it's a lifestyle. People tattoo the company's iconic brand on their rear ends for crying out loud.

Always the innovator, Apple has barely scratched the surface with regard to new devices and has hardly tapped into ways to use them.

People line up thousands-deep to buy newer versions of the company's most basic products every year -whether they need them or not.

That is something no other tech company has figured out how to do.

Plus Apple's market share is growing overseas, with a particular emphasis on the Asian Rim.

In China alone, for instance, there's the potential for another 30-50 million iPhone sales in the next 12 months that could add another $4-6 in EPS to Apple's bottom line.

I remain convinced that Apple could be the world's first trillion-dollar company and I'm not alone in my thinking. Since I first voiced that highly controversial opinion a few years ago, many other firms and analysts have joined me.

How to Play the Short-Term Apple Top

But in the short term, Apple's chart now looks like a classic blow-off top- and technically speaking it is.

Last Wednesday, we saw the stock close near the lows of the day after making a quick run up and a high volume, hi-speed failure midday.

The chart tells the story. Take a look

AAPL Stock

Like all charts, though, this is a matter of perspective.

Stocks that have run a long way in a short time often require some "digestion," or to use a market term, "give back." And Apple is no exception, particularly when you consider the stock has moved up 44.76% in only three months from $363.57 to $526.29.

If we contrast the prior chart with a longer-term view, we see Apple is simply accelerating ahead of a major trendline (seen below in red).

Not only does this speak to a pull back for the company – which traders have simply pushed ahead of itself on nothing more than euphoria – but it also highlights the next logical value buying point at $463.00 for aggressive traders, or roughly 6.96% lower than Wednesday's blow-off-induced close of $497.67.
AAPL Stock - Trendline

Of course, if you are more conservative you could consider buying Apple at roughly $420 – $430 which is where Apple was trading prior to the most recent earnings announcement that fueled this latest run.

Price at which AAPL was trading previous to recent earnings report

Positioning Your Portfolio in Apple Stock

As for when we might get there, that's a different question.

Blow-offs like this one typically set intermediate-term highs that last, on average 90-145 days. Not always, but enough of the time that even if the stock wants to run higher in the days ahead, a period of lower price digestion is likely ahead.

So there's a little time to play with.

  • Aggressive traders wanting to play the downside could consider put options or shorting the stock until it gets down to the $460ish ranges where there is likely to be aggressive buying support.
  • More conservative investors who want to add to existing Apple positions or establish new ones may find waiting until the price drops to the $420 area makes more sense.

Either way, be prepared for some volatility. Stocks like Apple that become media darlings tend to take on a life of their own before they again settle down and head higher.

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About the Author

Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs The Geiger Index, a reliable, emotion-free guide to making big money and avoiding losses, and Strike Force, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.

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  1. Richard | February 21, 2012

    If you're waiting for $420 to buy, you'll be left on the sidelines while AAPL climbs to $1000.

    • Rahman | March 26, 2012

      I'm sure he is smiling as Samsung hrsmtpaone sales overtake Apple's. And as the world's number two tablet maker introduces a 10.1N which will compete strongly with Apple's tablet in Germany and anywhere else Apple's patent warriors make progress. I have an iPad 1, and a Galaxy Tab (1st generation 7 inch.) I use the Tab 90% of the time. My wife has an iPad 2, but she keeps borrowing my Tab, it looks like she may well be in the market for the tab 7.7 plus (new generation.) On the plus side, the kids are happy with their iPads. Disclosure: I own shares in Apple and Google.

    • Fredrick | January 27, 2013

      I think that this stock is about to go to a lower level of price. So, in some months it will be a bargain again. Bye, Fredrick

    • Mike Boudet | March 13, 2013

      Hahaha! Check out this guy.

  2. Joe | February 21, 2012

    It won't see $460 again soon. The App store has a lot of long tail programs in it, and is in some respects a vanity press.

  3. Frank | February 21, 2012

    Joe's right. It will make it back down to $480, but not $460.

  4. DaveR | February 21, 2012

    I have no quibble with the technical analysis or comment on historical behavior.

    But is it really sustainable?

    Recent reports indicate that much of Apple's financial success with the iPhone was due to the telephone companies having made the mistake of paying Apple about $600 per iPhone which the telephone companies then resold to end users for about $200 together with a communications service contract on which all of these common carrier companies (AT & T, Verizon, Sprint) are losing big money? How long can that continue, and what will be the pricing obtained by Apple in the next round of purchase contracts with the large common carriers?

    • reasonable | February 21, 2012

      Even at a $50/month contract for 2 years (but the contracts are typically higher), they make $800 per customer over the 2 year contract, after deducting the $400 subsidy cost for the iPhone. Almost all cell phones are subsidized, so the extra cost (higher subsidy) of carrying the iPhone is worth every penny if they can increase the volume of customers (or reduce loss of customers). Cell Co's have huge fixed costs and very small marginal cost per customer, so customer volume will rule the day. If customers want the iPhone, the carriers will pay whatever it takes to carry it.

  5. Charles Young | February 21, 2012

    Every attempt to find the Money Map picks for 2012 have failed. Can you help me?

    Thank You

  6. Welski | February 21, 2012

    You could be waiting a very long time if you want to see apple at 460 a share . This will be a 1,000 dollar share. They are just taking over and once you have bought an apple iPhone you will not buy another brand.

    • Art | February 22, 2012

      I respectfully disagree.
      I have own an Iphone for about 6 months before I got sick with the artificial limitations imposed by apple and replaced it with an Android one. I have never been happier since then!

  7. Dave Foreman | February 21, 2012

    Best to wait until it hits 600 then buy then sell when it his 500 this summer. That way you can rest assured that timing the market is impossible and you should always scale into positions slowly over time because its impossible to predict the future no matte how obvious a blow off top is.

  8. Aapl girl | February 21, 2012

    I don't know, it's hard to predict but I think the 400's we saw last week were an over-reaction to news hype. This may happen again but I don't think the stock will dip very low. By the time it dips again it may have reached the 600's.

  9. DDM379 | February 21, 2012

    I'd recommend buying now. Apple shows no signs of slowing it's consistent release of highly anticipated products. There's been a fair amount of disheartening events that have not been able to slow Apple's growth (Steve Jobs resigning, passing away, factory conditions in China, sizable legal battles with competitors, etc). Remember that the announcement of the iPhone 4S was met with disappointment, but the product still shattered sales records.

  10. BA | February 21, 2012

    Highly doubtful we'll see the mid $400's unless something manipulative happens that scares suckers into selling, which will then lead to a huge Rally, as usual.

    I would bet on AAPL hitting $600 sooner than later, and hitting that number far before it'll fall into the mid $4's for even a minute.

  11. Greg Peterson | February 21, 2012

    Is there no chance for a split in the near future? If not, explain why not.

  12. M | February 22, 2012

    Are you serious? This trendline is a joke. Logical buying point my a… Just buy AAPLL, get a married put and enjoy the show.

  13. M | February 22, 2012

    P.S. You don't make a trendline by connecting two points. This is how you fail statistics.

    P.P.S. *AAPL

  14. GentleGim | February 22, 2012

    While you seem to advise waiting to buy in until the price touches the moving average, you show a chart which proves that pretty much never happens.

  15. baligeko | February 22, 2012

    If they fix up the trademark issue in China over the iPad,
    you will never see AAPL under $500 again.

  16. Cristina Casino | February 22, 2012

    At the present price, is it safe to buy more shares. I already have 180 shares.

    Thank you for your comment.

    Cristina

  17. Rog | February 22, 2012

    I am one of the lucky ones – always believed in Apple and bought 650 AAPL the day before the launch of the Bondi Blue iMac in 1998 at $40 a share. Good old Steve had returned nearly a year previously blew them out of the water. What a ride it's been. Lovely stuff.

  18. afamiii | February 24, 2012

    Dave Foreman is right in that the future is not only unknown, but unknowable. However the way to look at it are through a probability distribution. Odds of a pullback or flatliner lasting a couple of weeks are high. Odds of pulling back to 500 are higher than odds of 480 and 460 doesn't seem to be very likely at all. Odds of bolting to 540 within a couple of weeks are also low. So dripping in over three weeks makes sense.

    Longer term the stock is likely to go higher (750 is my personal target,) because its cheap (PE15,) growing fast (TTM EPS growth of 83%,) is a leader in a fast growing market with lots more room to grow (Smartphone global penetration into addressable market remains below 30%,) and the share price has momentum behind it.

  19. Joe | February 27, 2012

    Most experts are predicting a major pull back on that stock. It has a history of doing that. The market makers controlling that stock make money by pulling it dramatically back every now and then, especially after a big rise.
    Here is my prediction and I have made more trading it's up and down ranges than I could have by buying and holding:
    The stock will pull back dramatically so the market makers wipe out those on Marin, then it will go back up dramatically and will announce a stock split.
    I will be shorting real soon.

  20. B T Tucker | March 1, 2012

    Where are the picks I am supposed to get?

  21. Michael | March 4, 2012

    To those who know Apple by the tip of their fingers; can anyone tell me how much it would take at a price range of $500 to $600 to own one Board seat equivalent at Apple?

    • Minseok | March 26, 2012

      Here's a couple extcrpes from Investopedia:[About Stocks] A holder of stock (a shareholder) has a claim to a part of the corporation's assets and earnings. In other words, a shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares. For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company's assets. [About the Stock Market] The market in which shares are issued and traded either through exchanges or over-the-counter markets. Also known as the equity market, it is one of the most vital areas of a market economy as it provides companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company's future performance. Go to the Source link for a ton of more info.

  22. Sam | March 14, 2012

    Anyone who shorted on your advice is hurting pretty badly now. I'm very bullish on AAPL, and I think these are the most important chart to look at for anyone who's feeling bearish

    http://ycharts.com/companies/AAPL/pe_ratio

    http://ycharts.com/companies/AAPL/pe_ratio#series=type:company,id:AAPL,calc:pe_ratio&zoom=10&startDate=&endDate=&format=real&recessions=false

    I think AAPL is still cheap, and I expect it to break 700 before the announcement of the iTV this fall. After that it's anyone's guess, but I think Morgan Stanley's call of $960 is quite reasonable.

    “Investors still underestimate the potential earnings upside at Apple,” she writes in a research note. “Apple trades at 9.5x our base case and 7.1x our bull case calendar year 2013 estimated EPS "

  23. BRANISLAVA STAJDUHAR | March 21, 2012

    I just bought AAPL hopping to get the most out of the stock for the rest of the year. Any thouths on this….

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