Apple (NASDAQ:AAPL) is still arguably the best company on the planet. They have accomplished amazing things in spite of a lot of criticism of Tim Cook’s leadership. I personally don’t believe that he’s the best person for the job, but that doesn’t stop me from betting bullish on the Apple stock every chance I get.
In early June, I wrote about an opportunity to go long AAPL and it delivered a 20% rally and $30 per share upside. And more recently I was lucky to profit from smaller rallies. So check emotions at the door and let charts and fundamentals be the guides for the AAPL stock.
The outcome of this week’s market action is binary because of today’s Fed decision on rates. This also will also temporarily affect the AAPL but eventually the fundamentals will retake the reins. The Fed won’t change AAPL’s 2019 thesis.
Fundamentally, it is easy to argue for owning AAPL stock. Wall Street systemically undervalues it. AAPL sells at 19 trailing P/E ratio which is about four times smaller than Amazon (NASDAQ:AMZN) and 40% cheaper than Facebook (NASDAQ:FB).
However, this alone is not reason to expect higher prices because short of a miracle, investors will continue to undervalue the Apple stock. But technically there is reason to expect much higher prices soon. It is on a path to reaching $245 per share. This would be a natural extension from its rally that started last Christmas.
Apple Stock is Still Headed to $245
Off last year’s correction, AAPL stock rallied 50%. Then it gave back almost half it in the April correction — but this is normal price action. Bullish waves usually unfold in three pushes. First, the AAPL buyers took it until they hit resistance at $213 per share. Then, they corrected a bit and bounced off of the point of control of $172 per share. The third push, which is ongoing now should extend above $240 per share. There will be resistance at its last failing point at $226 per share.
This is all to say that if I am long Apple stock, I stay long for at least another $15 upside opportunity from here. Long term, if the stock market is higher in the future than so is Apple. This is a money-making machine that will take more than an underwhelming CEO to break it.
The Apple stock rally still has legs for many years to come. They are becoming less dependent on one product; the iPhone is no longer the only headline that investors focus on. The Services portion of the Apple revenues is now gaining momentum. These are recurring revenues that make the company P&L less dependent on a single item release and updates. Yes, the iPhone is still important but much less so than a year ago. Apple is finally adapting to the new way of doing business via subscription models rather than hardware pushes.
Short term, there is a gap above in AAPL to $223 per share from the silly Goldman Sachs headline from last week. But conversely, if AAPL stock loses $217 per share, it could fall to fill the gap at $208 per share. The good news is that even if this happens, there is plenty of support there to keep it above $200 a share.
Equity Markets are Headed to New Highs
Today’s fed announcement might cause volatility, but my personal overall market thesis is that we will make new all-time highs soon. I expect fireworks this week, but if we dip there will be buyers to pick the pieces up and run higher. I still believe that there are too many bears who are too comfortable being short when markets are at all-time highs and when the global central banks are dedicated to inflating the economies.
They say do not fight the fed and do not fight the tape. So I don’t see the reason to short stocks when both of these are true. So when we make new highs it will be a big bang where we will move a hundred points in the S&P 500 quickly. Because when the last stops trigger, buying will beget buying and I want to be long Apple stock into that event.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
