As an active investor I am most fond of technical analysis. I’m not saying that I don’t think fundamentals are important, but I like hearing what the price chart ‘tells me.’
When we take a look at the Apple (NASDAQ:AAPL) daily price chart we can see the RSI oscillator above the price chart and two exponential moving averages on the price chart, with volume and MACD both below the price chart. That tells me that Apple is at a low point—likely a good level to buy.
Let’s walk through why.
Technical Analysis, Step by Step
Click to EnlargeFirst, focus on August 2012. The RSI shows that the 14 period look back closed higher and higher, moving above the mid-point of 50 on the oscillator and kept moving up to the “overbought” area (above 70 on the RSI.) Looking straight down below that point on the RSI we notice that the shorter-term EMA rose above the longer-term EMA, and remained above it for weeks. Moving our eyes straight down again we see the MACD that rose above the signal line, confirming that the trend was changing to bullish by three technical indicators.
The beauty of these three together is that they combine both oscillators and trending indicators. We can also see a strong message by viewing the price and volume over the period.
In the chart, the red volume bars indicate when the price closes below the prior price bar and grey when the price closes above the prior price bar. The thin red line over the volume bars is the average volume over a look-back period of time. (In this case, 50 days.) This tells us when the buyers or sellers are bulging higher than normal. The largest volume of investors are selling-off versus buying-up, but this requires a horizontal scan of the eyes to view the split of the supply and demand.
Move the eyes down from the price low posted at $502.82 to the MACD. You can see that the MACD was at an ultimate low in mid-November. Also, look up to the RSI above the price chart. This tool has virtually spent 99% of its time since the peak in late September in the bearish mode, below the 50.
The price on Friday, March 1, 2013 was at a new low, approximately $70.00 per share below that point of $502.82 per share. Are the RSI and MACD at new low points, too? Well, no. Does this mean the price has gone down as far as it’s going to go? I’m not predicting anything. But, I find this an interesting view of what to expect in the near term. The ‘message’ I hear from the technical analysis is strong and clear!