INVESTMENT THESIS

The Apple Investment Thesis is founded on four pillars

1. Apple Ecosystem
2. Hardware
3. Services
4. Shareholder returns

Click here for the full moneywiseHQ Apple Investment Thesis.

On April 30, 2020 Apple reported earnings and the following video provides the highlights which confirms the Investment Thesis is valid.

When choosing a stock at moneywiseHQ, there are three important criteria

1. Best in Class
2. Secular Growth Trend
3. Strong Macroeconomic Environment

It is the large financial institutions, controlling the ‘billions’ of investing dollars which move stock prices and provide the underlying support to an investment. If one of those criteria are not met then they won’t invest in the company.

Apple remains the Best In Class company which is creating its own Secular Growth Trend, however, there are currently two ‘Risks’ to the broader market and Apple in particular which affect the Strong Macroeconomic Environment.

1. US and Global Economy – There are 40 Million unemployed in the US which affects disposable income and the economies are effectively in a recession. This is offset by Trillions of dollars of financial stimulus and the reopening of global economies.
2. US/ China Tensions – There is a movement in US politics to assign responsibility for Covid-19 and seek indirect compensation. Additionally, China’s movement on Honk Kong Sovereignty has affected the Autonomous designation on the region by the US and there are headlines regarding possible sanctions.

There is always ‘Risk’ in the stock market. ‘Risk’ escalated to a ‘Threat’ which escalates to an ’Event’. Each escalation affects the stock price differently and it’s important to evaluate the potential for an escalation to identify whether a stock movement is an opportunity to be capitalized on or a warning to protect capital.

TECHNICAL ANALYSIS

Money Flow Index (80 is ‘Overbought’ and 20 is ‘Oversold’): current 55. This is a neutral reading which is in a flat trend so there is equal chance of movement up or down. If extrapolated downwards to a level of 20 this would correspond with a stock price of about $300. Extrapolating upwards would lead to a stock price near $340. An ideal entry would be at an ‘Oversold’ level of 20.

MACD Momentum: This has been at a flat and elevated level since May 10, 2020. If the black line crosses below the red line this would be a sell signal. if the black line turns upwards, this would be a buy signal.

On Balance Volume (indicates accumulation or selling of shares by large Financial Institutions): There are two important points

1. The share accumulation by Institutions has been far lower than February when the stock price was previously at $320.
2. Share accumulation has been in a very tight range and throughout the broader market recovery institutions have not bought shares.

Technical Support (Downside Risk): $300

Technical Resistance: $320

Price Target 1: $340

What does that mean at moneywiseHQ

Stock price is a function of supply and demand. A stock price will go up if either nobody is selling or Institutions start buying.

The On Balance Volume Indicator reflects that the stock price has increased since the March low as a result of nobody selling. This provides a strong foundation to the stock price. If institutions start buying, this creates demand and the stock price can only go up. This will be indicated by a ‘breakout’ from the very tight On Balance Volume range.

It’s also important to ask, ‘why haven’t institutions been buying?’

The ‘Risks’ of the US and Global economies and the US/China tensions discussed above provide that backdrop.

If the stock price breaks out above $323 it could continue to $340 possibly $360.

If the stock price falls back, it should establish a range between $300 and $320.

At a current price of $320, the stock is at an ‘Inflection Point’ and will either breakout or pullback – but there needs to be a catalyst. It is also important to always consider that Apple is very susceptible to negative China headlines.

Strategy

1. Buy on a price breakout of $323. Maintain a disciplined STOP LOSS near $319 and re-evaluate and re-enter the trade. If the stock price falls below $319 it may continue to $300.
2. Buy on a price pullback to $300. The stock may establish a trading range between $300 and $320. Maintain a disciplined STOP LOSS near $298 and re-evaluate to re-enter the trade. If the stock price drops below $298 it may fall to $280.

A good investor has to be aggressive to make money, but if you are not defensive you won’t keep your money.