Apple in the low risk zone might be your signal to buy.
One of the questions I always ask when faced with such questions is, “What have I got to lose?”
As of last week, the answer to that question is, “A lot less than I did before.” That’s because Apple recently entered into its Low Risk Zone.
Let me explain.
Apple’s current VQ is 19.23%. That means that Apple tends to fluctuate up or down as much as 19.23% without really telling you much about its ultimate direction. Moves in Apple that are greater than 19.23% are more informative. Moves in Apple that are less than 19.23% are more noise.
Apple’s most recent significant high close was $131.94, which occurred on May 22, 2015. Using our VQ%, that means that if we see Apple fall 19.23% below this high close, i.e. below $106.79, then it is likely time to stand aside and let the dust settle before taking further action.
As of this writing the most recent close for Apple was $115.52. That’s already a bit more than 12% off of its high close. There’s only about 7% more correction left before Apple crosses its critical level of $106.79.
Of course, this critical level is what in TradeStops Pro, we call the Smart Trailing Stop. Apple has pulled back more than half-way to its Smart Trailing Stop. It has pulled back into its Low Risk Zone.
The Low Risk Zone is the price range in which a stock has pulled back a bit more than half-way from its recent high close to its Smart Trailing Stop. Here’s how it looks on a chart of Apple.
The blue line is the top of the Low Risk Zone. The red line is the Smart Trailing Stop. The space in between the blue and red lines is the Low Risk Zone.
Since the start of its most recent bull run in May of 2014, Apple has only crossed into its Low Risk Zone once before, in June of 2013. It touched the top of the Low Risk Zone again in February of 2014 but quickly bounced right off of it.
Just this past week Apple crossed into its Low Risk Zone again – the first time it has done so in over two years.
Does the fact that Apple has entered the Low Risk Zone mean that you should buy Apple? No, it doesn’t.
If you’ve been interested in buying Apple and looking for a low risk opportunity to do so, is this a good time to buy Apple? Absolutely.
I must admit, I’ve personally been interested in Apple myself now for the past 6 months, ever since they released the iPhone 6 and it became clear to me that Apple is going to literally dominate the all-important mobile space. I was also blown away when I read that they currently soak up 95% of the profits in the mobile space.
I’ve never seen anything like Apple’s dominance since, well, Microsoft 30 years ago.
Am I late to the party? Yep. Did I want to jump into Apple when all of the hype around Apple Watch was driving the stock to new highs? Nope.
As of today, however, I’ve got a very tempting opportunity to take a bite of the Apple. It’s particularly tempting because my risk in doing so is very low.
Instead of needing to use a full 19.23% VQ stop loss on Apple, I only have to risk about 7%. If Apple falls another 7%, below its Smart Trailing Stop at $106.79, then I can cut my losses and look for a better entry opportunity (i.e. wait for a Re-Entry Rule).
It’s stunning to see how the talking heads have turned on Apple in the past few weeks as Apple has corrected just 12% from its highs. It seems like just yesterday that Apple could do no wrong as far as the major media was concerned.
Frankly, it’s embarrassing. It’s embarrassing that our so called Fourth Estate has been reduced to nothing more than a bunch of ambulance chasers – making up stories after the fact to explain the latest “events”.
I regard the media almost exclusively as a contrary indicator at this point – I consider doing the opposite of whatever they suggest. The negative coverage of Apple is reaching a feverish pitch, having turned on a dime from its recent euphoric coverage.
If you’re interested in investing in Apple, this is a great chance to take a shot with a tight stop on a close below $106.79.
What have you got to lose?
Hopefully, you now know the answer to that all-important question.
To the growth of your wealth,
Richard M. Smith, PhD