Apple: Good For A Short Term Trade - But Long Term Top Likely Looms

By Levi at Elliott Wave Trader; Produced with Avi Gilburt

Do you have a trading/investing system? This system, does it facilitate the ability to dynamically adapt to what the market throws at you? Will it provide context in the near term and even tell you where you likely find yourself in the big picture? That’s what we’re going to discuss using (AAPL) as our study subject. 

The answer for AAPL is that we are able to see a short-term setup for a long trade. To do this we don’t even need the Apple Vision Pro. As a quick aside, yes, this new tech in interesting to be sure. Some say that it’s the best looking scuba mask ever - obviously, in jest. Others are put off by the fact that the picture on the Apple website does not demonstrate the true color of the glass in front of the user. Well, we’re not here to pick apart the tech. So let’s discuss the trade setup for the AAPL chart instead. 

The Fundamental Snapshot

“Apple looks rather neutral from a fundamental perspective. It's not appealing in my view from a risk/reward perspective but it's certainly a tradeable stock based on technicals.

The stock is quite expensively-priced relative to its current and expected earnings growth, which makes it rather unattractive from both a value investor and growth investor standpoint.

But the stock continues to have a lot of good quality metrics apart from valuation, and there's no clear catalyst for further declines, so I'm not necessarily viewing it as a short opportunity either.” - Lyn Alden

Context - All Important For The Investor

Latin provides several words to the English language. From the original Contextus we get "a joining together," or "to weave together”. For us today, colloquially speaking, context suggests the entire picture. It would be similar to being able to see the entire woven garment and not just a pocket or the seam.

Why is this so paramount for the investor? You may be an enthusiastic user of all products Apple. As well, perhaps you think that the stock is a long-term buy for your portfolio and you have a 5, 10 or even 20 year time frame for the hold. How can the context help you? If anything, it will help provide the setting for proper expectations. Look at this long-term AAPL chart from Zac Mannes:  

To be sure, a continual uptrend. But there are also some significant moments where the stock has taken a breather. From all that we can surmise, the next rest is nearly upon us. Likely not tomorrow or next week, but soon. This tells us to be cautious and on alert for a prolonged corrective period. More on this in just a bit. 

The Current Setup For AAPL

Let’s take a look at Zac’s more near term view here:

You can see by zooming in that there are still higher targets yet likely in this current rally structure. The Red [III] is there as a potential warning that a major top could have already been struck if support levels below us begin to give way before those higher targets are met. However, that is an alternative path. So, for as long as above support, we will look higher in the near term. 

Here’s the more detailed view from Zac:

The major topping zone overhead is in the $216 - $236 region. From current levels we see a plausible +15% or more. This near term setup would use the recent low at $179 as our tolerance for risk in the trade.

Let’s Zoom Back Out

Looking at the entire ‘garment’ woven by the AAPL chart we can see that the Cycle [III] target looms large just overhead, relatively speaking. The resulting corrective move likely will give the stock a decent haircut to its valuation. Just as a ballpark projection at this time, should the stock find a major high at the $225 level then a pullback to the January 2023 lows would be well within the standards we have observed in similar structures.

For the long-term investor, conceivably this is a much better entry point. Others will employ a dollar cost average method and buy on the way down. And yet others can hedge their forever-hold ideology. There are a myriad of manners to use the information provided on the charts. Each individual will decide which best fits their own unique situation. 

The Bigger Picture

Avi Gilburt recently wrote a series of articles entitled, “Sentiment Speaks: How To Know If We Are Heading For A Depression”. The link is to Part 1 of the 3-part series. Here is a brief quote from that article:

“Even if you have thought me to be eccentric or a complete crackpot (which I, my 8,000 subscribers, and almost 1,000 money manager clients can assure you I am not), please consider the items I am discussing in these missives with an open mind. Those that have done so have seen their ability to navigate our financial markets much improve. But, you must keep an open mind to consider these matters seriously. Ultimately, my goal is to help those willing to open their minds protect themselves from what I believe can be a very difficult financial environment over the coming decade or two.” - Avi Gilburt

Suppose we are indeed close to the cusp of a major top in the overall markets. In all likelihood AAPL would face stiff headwinds in such a scenario. This jives with what we are seeing on the long-term AAPL chart as well.

Conclusion

Our methodology is pointing to a high-probability buy setup for AAPL in the near term. We are certainly wary of the longer term top likely looming though. Not all paths will play out as illustrated. We view the markets from a probabilistic standpoint. But at the same time, we have specific levels to indicate when it's time to step aside or even change our stance and shift our weight.

There are many ways to analyze and track stocks and the market they form. Some are more consistent than others. For us, this method has proved the most reliable and keeps us on the right side of the trade much more often than not. Nothing is perfect in this world, but for those looking to open their eyes to a new universe of trading and investing, why not consider studying this further? It may just be one of the most illuminating projects you undertake.