Forget The Obvious Resistance, Apple (AAPL) Is Set To Soar

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Apple (AAPL) stock is in an interesting place. It doesn’t happen often, but just occasionally a chart point is so glaringly obvious, significant and frequently mentioned that, for a short time, price rather than performance becomes the focus of those watching the shares. Such it is with AAPL and the $100 level.

Just in case you are unaware, $100 is doubly significant for the stock. Firstly, of course, it has interest because of the fascination that most people feel for round numbers. Many are watching the stock approach the level with the kind of wonder that children feel watching an odometer roll over to 100,000 miles.

Secondly, and more significantly, $100 is roughly equivalent to the all time high of AAPL. After adjusting for the recent 7:1 stock split, that high is at $100.72. Logically that should be the resistance point, but the price action at the end of July would suggest that the power of round numbers is strong as the stock backed off just before hitting $100.


Apple (AAPL)Apple (AAPL)

Of course, that turnaround cannot be looked at in isolation. At around the same time the market as a whole took a turn, but, given that the S&P 500 started to fall 5 days before AAPL, the $100 level seems to have had some significance to traders.

Now that the broader market correction appears to be over, though, AAPL is once again pushing up towards three digits. This time, for two reasons, I believe it will be different, and the break through previous highs will continue with barely a pause.

Inevitably, as the all time high was approached a few weeks ago, some sellers emerged. There were, I’m sure, some AAPL holders who had been very patient, but for whom a recovery towards the high was too much of a temptation. Having looked at losses for over a year, taking a profit, even a small one, would have looked tempting; even more so as the stock retreated back to $95. Nothing motivates a nervous stock holder to sell more than fear that they could miss their one chance at a profit. Those that felt that way, though, have probably been flushed out.

Those left are less likely to be swayed by short term moves. They are long term holders and believers who can see the second reason I believe AAPL is about to soar through the three digit barrier... it is cheap in an environment where cheap is rare, and therefore sought after.

The recent correction may have been sparked by geo-political concerns but it led many to reduce risk in their portfolios and back off from some of the more speculative stocks and sectors. As the situation settles down, then, that money is less likely to be looking for high risk plays and more inclined to search for solid value. Inevitably, after a couple of years of appreciation in stocks, most obvious value has gone. AAPL is one of the rare trades that offer value by most metrics without any major problems within the company.

The most obvious iteration of that value is a P/E ratio which, at 14.24 is significantly lower than the broader market. In the past, however, as I pointed out before the big drop in the stock, forward P/E was not a particularly good measure of value for AAPL. The analysts whose forecasts the number is based on were scrambling to keep up with growth that consistently beat even their wildest estimates, so a low P/E meant very little.

Those days of inflated growth projections are well behind us now, though. In fact, with an average annual growth forecast of 12.24% for the next 5 years a case could be made that the opposite is now true, and Wall Street is underestimating Apple’s potential. This is especially true if rumors of a major re-vamp of the iPhone and other product releases are to be believed.

In that environment, where the fundamental value of the stock becomes far more important than any proximity to a round number or previous highs, those things cease to be a barrier to further appreciation. That is where we are, and that, I believe, will cause AAPL to march on up through both artificial points of resistance in the next few days, clearing the way for a truly significant move up.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AAPL

Martin Tillier


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