Getting to the Core of Apple

Anthony Trongone, Ph.D.

With its history of forcefully changing direction, Apple is certainly an adventurous play. But as this hi-flying stock approaches its record price, does it still offer plenty us of opportunity? After gaining $26.34, in 53 trading days, it has fallen $2.50 in 10 days. When you are trading a stock with such wide price swings, it certainly pays to know the past.

This analysis runs from the day of Apple’s 2-for-1 split, which was on February 28, 2005 until October 13, 2006. On the morning of the split, its opening price was $44.68 – 412 days later its closing price was $75.02.

In this article we review four fast facts, which will make trading this company very digestible:

fast fact: (1)

When Apple’s daily trading volume was above 60 million shares, the results of the next 10 trading days gave the insightful investor an attractive $28.36 average daily return.

In the chart, the red lines indicate days of excessive volume, in which Apple’s daily trading volume surpassed 60 million shares. Apple’s price appears to be very sensitive on days of strong trading volume. In most cases, you can see how it was the catalyst for a long lasting recovery. In looking at the following 10-days the average daily return was $2.84 – with 7 upturns in comparison to 3 downturns.

note! Once the volume surpasses 60 million, those days within the 10 trading day period do not qualify. For instance, the volume on 03/29/06 was 84 million shares; therefore, the study is not including the performance of any days with excessive volume during the next 10 trading days.

average daily trading volume: 27.1 million shares

average previous 30 trading days: 28.6 million shares

fast fact: (2)

After reaching a closing price of $85.59 (01/13/06), there was a $22.88 correction in 50-days; however, there was a noticeable difference between the two trading sessions: the overnight session’s profit was $10.24; whereas, the $37.12 decline in the regular trading session was extremely painful.

definitions:

overnight trading session (ovs): (4:00 p.m. to 9:30 a.m. et)

(today’s opening price – yesterdays closing price).

regular trading session (rts): (9:30 a.m. – 4:00 p.m. et)

(today’s closing price – today’s opening price).

After a long run to the upside, this technology stock fell sharply – with 33 declining days during this 50 trading day correction. As you can see from the line chart, the overnight session steadily rises, but the regular trading session continues losing ground.

fast fact: (3)

There is a significant performance difference between the two trading sessions!

The table below demonstrates this profound discrepancy: A $63.495 advance in the overnight, but a -$32.730 decline in the regular session. Always monitor the performance of a system before you begin trading. For instance, in the previous 20 trading days the OVS has fallen -$2.01, but the RTS, with a $2.93 advance, appears to be trying to reverse this pattern.

In statistics this phenomenon is known as “regression toward the mean.” This can be summarized by the expression “what goes up – must come down.” But, in the case of the RTS, one may say “what goes down – must come up!

fast fact: (4)

The performance of the overnight session greatly influences the regular trading session!

The RTS fell $32.73 in 413 days; nevertheless, there were ways to soften this blow. If you formulate your trading decision on the price movement of the OVS you can improve your results. After a declining OVS, the RTS fell $11.83; conversely, after an advancing OVS the decline in the RTS was harder to digest, as there was an overall decline of $22.93.

If you are restricting your trading to a few stocks, these four fast facts offer enough profitable opportunities and insights into playing the percentages to keep an active day trader busy on a regular basis. If you begin applying my strategies, do, however, monitor their success before trading them.