APPL – Apple’s Correction no big Surprise to Readers of ModelPrice Guy

Back on September 5, I did my monthly market commentary on the S&P 500 (here), which ended with my observations on Apple Computer.  Apple is the largest weight by market capitalization in the S&P 500 at 5%.  So it doesn’t take a genius to figure out Apple can have an impact on the S&P 500 index.

I have reproduced our model price chart for Apple as at the close for September 4, 2012.

Apple Computer with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

Apple did transit up through EBV+6, which at the time was $680.16.  Apple went on to hit a high of 702.10 on September 19, according to Bloomberg.  This set up a perfect scenario where if Apple transited down through the same EBV+6, this would represent a perfect exit for traders and anybody who wanted to lighten up on Apple.

As readers can see from the above chart Apple did exactly this in the spring of this year.  Apple finally bottomed in May of 2012 by using our calculated model price as support.

Apple reported its September year-end numbers and we have updated our model price chart to include the new numbers.  I have reproduced this graph below.

Apple Computer with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of AAPL subsequent to this post will be maintained on Facebook, here.

In case you are wondering what happened to EBV+6 = $680.16 in our first model price chart dated September 4, 2012 – when we include annual financials updates, as the case with Apple, we eliminate quarterly financial information and we connect the last annual audited financial statement to the current new annual financial statement.  This methodology can obscure the nuance of quarterly results you can see from the first model price chart reproduced above.

The important aspect in our new chart is that calculated model price for Apple is $545.73.  This was support in the last correction with Apple earlier this year and may occur again in the future.  Failing this EBV+5 or $484.52 is strong support for Apple if model price does not hold.

The other observation I can offer investors is how fast the balance sheet of Apple is growing.  EBV+6 one year from now we calculate to be $1007.84, with EBV+5 being $634.69.  (We can project out by adding estimated earnings less currently announced dividends to estimate where these levels will be.)  Rallies and corrections will occur all the time in stocks, but usually stocks stay in zones that they are the most comfortable.  Certainly for the time being Apple looks must comfortable trading in the zone of EBV+6 and EBV+5.  So for traders selling at the top of the zone and buying at the bottom of the zone makes sense and profits.

Apple Computer with monthly price bars, EBV Lines (colored lines) and model price (dashed line)

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