Should You Buy Apple Stock Ahead of Its September Event? (AAPL)

Apple (AAPL) stock is down about 14% from its 52-week highs, with the brunt of the battering coming in the last few months.

aaplPrior to the correction in Apple stock, whether to buy AAPL hasn’t been much of a question. But lately, investors are wringing their hands trying to decide whether to buy Apple stock on its current dip, hold it until things look up or just hand it off to someone else.

The basic drivers of the market are working their witchy magic here: Will investors miss a primo opportunity to get in on AAPL before it shoots to the moon, or avoid getting sliced by a falling knife?

The thing about a knife up in the air, however, is sometimes the handle appears to look like an easy catch, but that can turn out to be deadly deception.

So with that, we offer up three factors that can help you decide whether to buy, hold or sell Apple stock before its September event.

Factor #1: Upcoming Product Announcement

While an exact date hasn’t been confirmed, Apple will be showing off its new lineup of iPhones, iPads and possible an Apple TV capable of competing with over-the-top streaming media like Netflix (NFLX).

Apple’s product launches have become a calendar event for the die-hard followers, but is that fan-boy enthusiasm alone worth buying AAPL ahead of the Apple event?

Apple stock sees incredible volatility heading into these product announcement: Performance of Apple shares average a loss of 2.5% for the month leading into product events. The mildly negative average masks the volatility of trading into these events, as only one of the past seven years has seen a move of less than 5% in either direction.

This means that the stock is going to make a relatively large move before we even see the new products Tim Cook reveals at the Apple event.

Performance of Apple stock after these product announcements also has a negative bias as average performance is a loss of 2% over the week following the events. This indicates that there is a “sell the news” mentality toward trading AAPL, as the media buzz surrounding the event is usually larger than the event itself.

Apple Event Verdict: Sell

Factor #2: Apple Stock Charts

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Apple’s chart is clearly telling the story of a stock that may be in transition.

After trying to push through the $130 level three times in the last six months, bullish traders appear to have finally given up and turned the reins over to the sellers. Since then, the stock has declined almost 20%, slicing through supportive trendlines along the way.

Today, the 20-day moving average for Apple stock is trading below its 50-day trendline, a reliable indication that the intermediate-term trends should remain bearish. Since 1990, Apple stock averages a daily loss of 0.3% each day that the 20-day MA remains below the 50-day. In addition, Apple shares are heading toward drawing a death cross, which will have additional negative implications.

A death cross occurs when a security or index’s 50-day trendline crosses below its 200-day trendline, signaling a longer-term decay in the underlying’s price action. The last time Apple stock saw a death cross was in December 2012. At the time of that death cross, Apple stock was already down about 25% from its highs. The shares continued the bearish trend to decline another 27% four months after the cross.

Chart Verdict: Sell

Factor #3: AAPL Sentiment

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We always keep an eye on sentiment because it is often one of the major drivers for a shift in intermediate-term price trends. In Apple’s case, sentiment is reflecting that the crowd remains perhaps too optimistic over the company’s outlook.

Currently, 73% of the analyst covering the stock have it ranked a “buy.” This is higher than the average of 55% for Apple’s peer companies in the Nasdaq-100. While the percentage of “buys” is not alarmingly high, it does mean that the risk of downgrades is currently higher than the potential for upgrades.

Similarly, short interest for Apple stock is near the lower end of its range for the last two years. This signals that there is little to no probability for any type of short squeeze to pressure prices higher.

While Apple stock may be tempting at its currently levels, the intermediate picture suggests that the stock is going to give us an opportunity to buy shares at significantly lower prices over the next few months.

Aggressive traders may want to take advantage of the dead-cat bounces that will occur; however, long-term investors should sit on their hands and wait for Apple stock to get past the hype for its “next big thing,” which is more likely to disappoint than impress.

Set your targets to buy at $100 and then again at $85 as both levels are within our current expectations for the stock’s lower range.

Sentiment Verdict: Hold

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