If you have big gains in the stock market, now's the time to take some profits, Jim Cramer cautioned his Mad Money viewers Tuesday evening. This rally is starting to show its age, and the investors propping it up may soon head for the exits.
One group of investors sending stocks higher are aggressive, momentum-oriented mutual funds, said Cramer. These funds have little discipline and have no problem sending shares of Apple Inc. (AAPL) up 72% from its March lows.
We last looked at the charts of AAPL on May 12 writing that, "Stay long shares of AAPL recommended in previous updates. Raise sell stops to $301. $350 and then $400-$424 are the price targets."
Prices are past our $350 price target so let's check out the charts of AAPL again.
In the updated daily bar chart of AAPL, below, we can see that the shares have been trading in an uptrend from March. There are a number of relatively shallow and brief corrections along the way but none of them generate enough selling to make a top reversal. The slopes of both the 50-day and 200-day moving averages are positive.
The daily On-Balance-Volume (OBV) line has been rising from early April telling us that buyers continue to be more aggressive. The 12-day price momentum study in the lower panel shows equal highs from April to May to June while prices make higher highs. This is one of the categories of bearish divergence (higher highs in price but equal highs in the indicator) but as a reminder, divergences are not precise buy/sell indicators. If AAPL was making higher highs but the indicator was making lower highs it would be a more important warning signal.
In the weekly bar chart of AAPL, below, we can see a bullish picture. Prices are in an uptrend and above the rising 40-week moving average line but not really extended above the average line.
The weekly OBV line has been rising the past three years and just made a new high for the move up telling us that investors in AAPL have been more aggressive buyers. The 12-week price momentum study shows higher highs being made since May and not signs of a bearish divergence in this time frame.
In this first Point and Figure chart of AAPL, below, we used daily price data and plotted percentage swings. Here the chart tells us that AAPL has reached and exceeded a $331 price target.
In this second Point and Figure chart of AAPL, below, we used daily price data again but with a traditional even dollar increment scaling. Here the chart shows that prices reached and exceeded a $351 price target.
In this last Point and Figure chart of AAPL, below, we used weekly data and a traditional scaling. Here the chart suggests $583 as a price target.
Bottom-line strategy: While AAPL does show a bearish divergence between the price action and the momentum indicator on the daily chart, that seems to be the only warning sign on the charts. AAPL could have yet another shallow pullback but signs of a distribution (selling) top are so far absent.
For a fundamental take on Apple read what Paul Price has to say on Real Money Pro.