Apple Monthly Charts and Daily Charts - A Sell

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The chart above is a long term (lifetime) chart of AAPL. Apple is certainly a bell weather stock. As far as products and innovation go, I think we all know AAPL is top of the line, and its stock is now making new highs after the recent bear market.

But does that extraordinary strength mean that you should buy it? Well from a technical analysis standpoint, there is no way I'd buy this here. In fact, this looks like a perfect time to unload every last drop of AAPL. Even the best companies falter at times. And the higher they fly and the more institutions and big investors that join in along the way, the more fuel for declines and the longer it takes to unload those shares. Also, consider whether you get dividends during a period of poor stock performance. In this case you don't as the trade off for outperforming shares is often lack of yield.

The RSI shows a massive divergence on this break to new highs. The MACD also shows a major divergence. If you bring up a DMI/ADX chart you can see that the trend peaked in 2007 and now the DMI is back near trendless territory. The break to new highs in AAPL stock in 1991 is most technically reminiscent of the current break to new highs. Not a good time to hold. Better things to do with your money, even if it's nothing.

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Now this chart is further warning, and should be understood by those who have studied buying breakouts and are familiar with Investor's Business Daily methods of analyzing bases and breakouts on growth stocks. This chart is a daily chart showing the last few months of action.

First and most importantly, the volume on the break to new highs out of this base was absolutely pathetic for a break out. That is a HUGE red flag there. THERE WAS NO BIG MONEY PARTICIPATION ON THIS BREAKOUT!!!!!!! Think of it this way, the big money is unloading to anyone else who is buying right now.

Secondly, the base is a double bottom base pattern that doesn't undercut the first bottom during the second bottom. This is noted as a common faulty base pattern which will lead to more frequent failed breakouts.

Next the horizontal green line is the breakout level. Most successful breakouts will NOT close back below this level after the breakout. Often you will see a retest of that level as support before a move higher, but usually the breakout is held on a closing basis. On Friday, that level was lost on a closing basis after a weak % gain on the breakout. As far as what to expect when a breakout fails......often there will be a fast move down to undercut the low of the failed base at a minimum. So $185 looks likely on this over the next few weeks. Longer term it looks like it will be more than that though.

So, part of my reason in bringing up these charts is that these bell weather stocks often give you major clues about what the broad market will do. If AAPL is showing strong technical signs of a long term pullback, what do you think stocks as a whole will be doing?

Also for those doing their own investing, it pays to train yourself to think sensibly and understand the psychology of what is happening. For instance if I told you that I thought AAPL would go up 50% is that exciting or worth chasing? Well at the 2003 lows AAPL was trading for $7 a share. It is up 30 fold or 3000% since then. So does a 1/2 fold or 50% increase really mean much? It is important to put things in perspective and to see whether the amount of attention and excitement you or the crowd feel about the investment is really proportional to the situation.

For instance in 2008 when oil was flying high and had gone up about 150% or so since 2007, and some prominent analysts made news by setting targets for oil at a 50% gain, that generated a lot of excitement and made headlines on the finance web sites. Well oil was up about 1500% since the late 90's. 50%....big deal. As it turns out, those projections were off and oil topped out right about then. So there is a contrary opinion and crowd psychology lesson in there that anyone without any investing experience ought to be able to understand if you think about it.

So obviously I don't have a crystal ball here, but this doesn't really look that complicated. If I owned AAPL (which I don't), I would sell on all time frames. And if I didn't own it, I wouldn't even think of buying it right now, and only would consider it if it formed a good base after dropping below $185.