AAPLTalk, Pre-Fiscal Q4 2013 Earnings: Does(n’t) Context Matter?

PREFACE:  I obviously don’t have a clue how AAPL will trade after earnings, regardless of the results.  You can make bullish and bearish cases from the exact same charts – the main point of this post is to take a quick, somewhat more “holistic” view of the daily and weekly charts.

Hard to believe AAPL’s had a 6-week rally, but that’s exactly what’s happened.

Even though it’s important to note the context of the rally – it started from a scary air pocket measuring 60 points from the previous week’s trading high.

So while everyone’s certainly entitled to their opinions heading into earnings – I would nonetheless make an appeal to the importance of context.

Some think AAPL is overextended.  In many ways it most certainly is (daily chart):

aapl-daily-102513close

Williams/RSI say overbought.  MACD-h has been positive for quite a while.  AAPL hovering above the EMA-8, and hovering above the accelerated bright green trendline, despite the most recent down day.  I’m not too familiar with them, but bearish divergences are apparently showing up quite visibly on “higher-sensitivity” MACD-h charts (which produce higher peak/lower valley readings).

But that’s not the entire story.  AAPL was oversold from a 46%…”correction”.  It’s rebounding from a multi-week double bottom formation.  The intermediate uptrend has been incredibly strong and not once seriously threatened.  AAPL actually isn’t flying outside the upper BB like many momo names often do.  Parabolic share gains make for inherently unfavorable technical compares in the future (price has multi-week parabolic spike, MACD-h more likely to post higher-than-normal highs, for instance).  Price tells the story, and AAPL has powered through downtrend lines, flag patterns and prior resistance alike, and not in a particularly hyper-momo, unsustainable manner overall.

So, context.  It doesn’t necessarily say one theory is better than another – like price history, it kinda just is.  There’s also the weekly chart to consider:

aapl-weekly-102513close

Very much the same “AAPL could at least use a break” story from one perspective.  Six green candles in a row, over every moving average, bearish divergence on the MACD-h, at least two readings say solidly overbought.

On the other hand – during the first terrifying phase of the post-September cascade, AAPL was down for eight weeks in a row before a bounce of any kind – during which time AAPL had two crimson red candles that were considerably larger than AAPL’s August 16th weekly candle on an open-to-last-price basis.  MACD-h has been positive for five months, but AAPL fought its way back from almost seven months of negative MACD-h.  That beats the 2008-09 MACD-h negative streak by a few weeks.  AAPL only broke above the SMA-100 just this week, having failed to reclaim it three times before.

You’ll also notice the dark green parallel channel (which in my opinion is of somewhat less slope than the multi-month downtrend) and the until-recently-remarkably-consistent blue macro uptrend line.***  AAPL has yet to reach either.

None of this is to say that the intermediate trend is “guaranteed” by any means. Or that a potential macro trend will be “restored”.  It’s strange to say – but if anything, context may only “matter” if Apple’s results are both objectively positive and received well by Wall Street – of which those ever-unpredictable analysts remain an influential part.

So even if Apple’s earnings and guidance both look great – there’s always the chance AAPL sentiment will fail and we’ll be looking at a “diminished” chart by Friday.  Even if analysts are mostly positive on the news.  Fundamentals be most certainly damned in that case.

But to me, it’s worth getting a fuller picture of AAPL’s charts, whatever happens next week.  Best of luck to all, bull, bear or neither.

***Yes, I’ve tried the log price scale in the past, as I posted some time ago.  Linear makes the most sense by far.

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