When Apple, Inc. (AAPL) hit $700 after the release of the iPhone 5 in September many wise investors felt that the stock was overbought and ready for a correction. But an over 20% fall through significant support at the $600 price level has come as a bit of a shock to even the savviest of investors. So when will Apple, Inc. find support?
Let's first remind ourselves that analysts are still confident in Apple, Inc.'s worth and maintain a $767.00 average price target, with a high target, from Topeka Capital analyst Brian White, of $1,111.00, a target that was reiterated just this Thursday, November 8, 2012.
Analysts remain confident in Apple, Inc. because the current price correction is very reminiscent of three recent corrections the stock has successfully left in the dust, a 16% correction in October last year, a 15% correction in November last year, and a 19% correction in May this year.
Though the current correction is a bit more significant and has brought the stock further below its 200-day simple moving average (currently 8.5% below its 200-day SMA) than previous pull backs, this could be partly due to additional, politically-induced market fears including the "fiscal cliff" scare and the possibility of a higher 2013 capital gains tax rate.
But even with this taken into account, doesn't it seem that Apple, Inc. is grossly underpriced at present? I think so, and I believe support may have a story to tell.
Apple, Inc. tumbled through support at the $600 price level recently and didn't look back. But now it's up against a more significant support level at $530. I say this support level is more significant because it served as resistance for the stock in March and, after breaking above this level quite quickly, investors then used this price as a place to buy during the pullback in May, making it a new support level for the stock.
Now we're right back where we were in May, and what's worth noting is that at the lowest point of many of Apple, Inc.'s previous pullbacks, volume increased significantly. The recent pullback to $530 in May was no exception. Volume increased from about 15 million to 25 million, at the stock's lowest point, then back to 15 million shortly after. We're now seeing a similar volume pattern in the current pullback, with volume increasing from about 20 million to 35 million, indicating a possible repeat of the May bounce.
It should also be mentioned that Apple, Inc. is approaching a retail season that has, historically, been very successful for the company. Sure there are non-believers who fault Apple, Inc. for lacking innovation when comparing current products to those previous, but the product line up Apple, Inc. is offering this retail season is very strong and is unlikely to disappoint, with the iPhone 5 (with product supply "no longer an issue" and a map app-improving iOS 6.1 in current development), the already popular iPad Mini, the iPad 4, the redesigned iMac, and the new retina display MacBook Pros.
I suggest, of course, waiting to be certain that the stock shows some sort of consolidation pattern around the above-mentioned $530 support level before entering, as a further fall below $530 may result in continued panic and/or trigger a myriad of support-focused stop loss orders. But this level, if it holds, should serve as a very attractive entry point into a company whose recent, minor missteps will be quickly overshadowed by coming successes, just like last time and the time before that. Be ready.