The stock market is one fickle beast.
Without rhyme or reason, investor sentiment can change
direction like leaf being blown by a breeze. A company can be on
top of the world one day with a soaring stock and bullish
sentiment across the board. The next day, investors can get
spooked by the most insignificant rumors and turn bearish,
sending shares plunging lower. Long-term investors need to learn
to deal with the seemingly random day-by-day gyrations of
When I first started stock investing with a long-term horizon,
the ups and down of stock prices were difficult to deal with. I
felt like a genius when my stocks would soar higher. At the same
time, when a stock I had purchased plunged, I would get worried,
angry and lose confidence in my decisions.
I learned a simple yet highly effective method of dealing with
this emotional roller-coaster. Over time, I internalized the fact
that price and value are two completely different things. This
sounds obvious, but dealing with the truth is far different than
intellectually understanding the words.
My start in the stock market was as a short-term/day trader.
Short-term traders are concerned only with the price. A long-term
investor should be concerned with value first, then price. Being
focused on the true value of a company, rather than the daily
price changes, keeps the emotions in check and allows for better
Remember, as a long-term investor, you should buy value. Value
is what lifts price in the long-term despite the short-term price
fluctuations that shake out investors who don't understand this
One stock I believe is the embodiment of this idea is the
venerable tech giant
Apple (Nasdaq: AAPL)
Back in April, I wrote that as long as shares stay above the
200-week simple moving average, Apple remains a buy candidate
with an 18-month target price of $550 to $575.
Well, that's exactly what is occurring right now. The stock
dropped almost exactly to the 200-week simple moving average
prior to bouncing higher since around the first of July. Shares
are very close to taking out the $500 barrier on the daily
Many investors lost faith in Apple during the plunge. But
investors who remained focused on value, rather than price, have
been rewarded as Apple recovered its losses for the year.
Investors who took the opportunity to buy shares during Apple's
plunge and used simple technical timing tools have earned a tidy
profit over the past 90 days.
Based on the changes since that article, I am raising my
forecast on the tech giant to $700-plus within the next 12
months. In fact, I wouldn't be surprised to see shares push
$1,000 within the next 36 months. Sure, there will be price
gyrations during this time. However, as long as the price stays
above the 200-week simple moving average, any drops can be viewed
as buying opportunities. Here's why:
|1. Double Bottom On The Weekly Chart
Technical support, in the shape of a double bottom,
developed on the weekly chart at the 200-week simple moving
average. The price is now above the 50-week simple moving
average. Technically, further upside to retest the $700
highs appears probable.
|2. Smartphone Growth In Overdrive
Market research firm IDC projects a 40% increase in
smartphone sales in 2014. This includes more than a billion
smartphones and tablets being sold to emerging markets such
as the BRIC nations (Brazil, Russia, India and China).
Apple is in position to gain market share based on this
growth, and the cheaper version of the iPhone 5 will surely
help in these markets.
|3. Respected Wall Street Firm Sets $777 Price
While I don't generally pay much attention to most Wall
Street firm projections, Cantor Fitzgerald has initiated a
"buy" recommendation and a $777 price target on Apple's
shares. I have respect for Cantor Fitzgerald, and when its
forecast supports my own research, if nothing else it
raises confidence in my price targets.
|4. Huge China Deal
Apple is holding its first-ever media event in China on
Sept. 11, a day after the new iPhones will be officially
Rumors are that Apple will use this opportunity to announce
the long-awaited deal with
China Mobile (
, which is the world's largest cellphone carrier with more
than 700 million active users. Clearly, there are
impediments in the way, but the potential for a
lower-priced iPhone for this market means strong
possibilities remain. This deal would be a major upside
catalyst for Apple shares.
Risks to Consider:
Now, don't get me wrong -- I'm not telling you to stick with
a stock that you believe has value regardless of what happens to
the price. Be certain to use basic technical tools such as the
200-day simple moving average to confirm your fundamental
analysis. Should Apple's price break the 200-week simple moving
average, then my bullish projection is void.
Action to Take -->
I like Apple right now on a breakout close above $500 with a
$700-plus 12-month target price.
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