Update on Apple at this critical juncture

Having not touched this blog for three and a half years, I want to put some thoughts down. I was made redundant today from my job in adult education. I had been furloughed for the last three months and have had time to follow markets more closely than in the last few years.

There is huge risk in the current situation but that doesn’t make it certain that equity markets will fall, nor when they will fall if they do. I will use a bellwether stock to show the point.

Apple (AAPL) has a bearish divergence on its 14 week and 14 day RSI.

Apple, 14 week RSI

Apple, 14 day RSI

In 2012, I identified a similar divergence situation that led to a 45% decline over the following seven months. My RSI divergence method is outlined here.

Most tops set up with some form of divergence, but not every divergence is a top. Examples are highlighted from 2015 and 2017 where the weekly RSI divergence was blown away.

My observations during the last few years have reinforced my belief that the situation of the broad market is more important than any given stock’s chart.

In this broad market picture, sentiment is worth considering but at present, the two sentiment surveys I follow give mixed signals. Advisor sentiment has become dangerously bullish again whereas individual investor sentiment remains bearish, leaving scope for further upside.

The index chart that best shows the potential danger is below.

Russell 2000: Long term moving average crossover

The 12 and 26 month moving averages last crossed in 2010. Using moving averages crossovers is not foolproof, they can at times cross only to cross back a few months later. They give late signals and don’t tell you when the move they suggest will occur. What they do offer is a way of ensuring you aren’t on the wrong side of a major trend for a long time. The method is outlined here.

A cross after 10 years of bullish alignment is a significant warning and if it sticks, it would indicate a broad economic downturn. This will eventually have an effect on Apple. People don’t buy expensive new products when they’ve just been made redundant.