As most of our long time followers know, at Dorsey Wright we are interested in keeping our analysis as simple as possible when making investment decisions. When it comes down to it, we believe it’s the supply & demand of the market which actually moves asset prices. Our systematic approach to relative strength based investing allows us to remove human emotion from the investment process and apply a robust investment philosophy to the markets. We believe this approach allows us to eliminate the day to day market “noise.” .
Yesterday, tech giant AAPL reported earnings after the close. This created a buzz among financial news media as AAPL is often looked at as one of the most important leadership stocks in the NASDAQ. We thought it would be interesting to take a look at the technical set up of the traditional point and figure chart too see if the current supply & demand of the market can give us any insight in how the stock will react to the recent earnings headlines.
AAPL: Point & Figure Chart
A quick glance at the point and figure chart below and we can see just how important the $104.00 level is in terms of supply and demand. This is now a quadruple top area in which the bulls have been unable to take out on previous attempts. Note also the previous double bottom sell signal which occurred on 10/15 and had a measured move price target of $88.00. This is now looking more like a “bear trap”, but in order for the signal to be negated AAPL will need to trade above $104.00 to confirm the quadruple top break out mentioned earlier. As we’ve stated in previous blog posts, with false moves also come fast moves. Furthermore, the more often a level is tested and rejected (such as the quadruple top), the more energy this market is building should it eventually break out. Time will tell if the bulls will be able to obtain this in the near future, but it is certainly worth keeping an eye on. A confirmed break out may be a sign that relative strength readings for AAPL are set to increase in the near term.
Dorsey Wright currently has a position in AAPL.
Conclusion:
In the above post, we’ve provided a good example of how analyzing traditional point & figure charts in terms of supply & demand is a simple way of eliminating much of the market “noise” on earnings report days for major market moving stocks such as AAPL. In essence, supply & demand are in equilibrium right now just below the $104.00 level for the stock of AAPL. Thus far, the market has been unable to generate enough momentum to take out the overhead supply and force the next leg up. However, it’s worth keeping an eye on and should the break out be confirmed it may be a sign the relative strength readings for AAPL are set to increase against its peers.
This example is presented for illustrative purposes only and does not represent a past recommendation. The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. The information found on Dorsey, Wright & Associates’ Web Pages has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this report without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. However, such information has not been verified by Dorsey, Wright and Associates, LLC (DWA) or the information provider and DWA and the information providers make no representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein. Neither the information nor any opinion expressed shall constitute an offer to sell or a solicitation or an offer to buy any securities or commodities mentioned herein. This report or chart does not purport to be a complete description of the securities or commodities, market or developments to which reference is made. There may be instances when fundamental, technical, and quantitative opinions may not be in concert. A list of all holdings for the past 12 months is available upon request.
