Apple: An Island in the Sky or an Island Worth Visiting?

While the stock market has churned lower of the past several weeks, Apple stock has been sliding right with it. Since the peak in the market on August 9, while the S&P 500 has fallen 8%, AAPL has lost 12%. There has been lots of chatter about competition for iPhone, eReaders and a slew of new tablets being released by competitors. It's all had investors nervous.

This morning, however, the stock took off to 3% gain, above 250. AAPL benefited from a strong market and talk a revival of Apple TV and of deals for content that will bring it into the streaming media wars. At today's media event, Apple announced several product updates; really no major new product announcements.

AAPL has had some big up days during this correction. Each one has attracted sellers, with the stock price grinding downward.  Is this another upward blip, destined to fail? I don't think so.

I have included two charts. The first one is a daily chart of AAPL. Note that eight days ago there was a downside gap followed by six of sideways movement. Then, today, the stock gapped upward. This is a classic bullish "Island Reversal". It is a high probability formation, suggesting Apple's correction has ended. Note, also, that today's gap brought the stock above the 13-day moving average, another bullish signal. There's more!

AAPL Daily Chart

The next chart is a weekly chart of AAPL.. The domed lines at the bottom designate "idealized" weekly cycle rhythms for APPL. The blue vertical lines separate actual cycles, marked by blue vertical lines. A cycle is measured from low to low. The past four weekly cycles had ranges of 14 to 17 weeks; very good consistency. The low that was made last week came on week 16, just above the 40-week moving average. That meant this low came at a significant time. It enhances the quality of the island reversal, as it located just as AAPL stock was due to have a cyclical bottom.

AAPL Weekly Chart

It's also important to mention that each cycle had a higher high and higher low, a solid uptrend. In cyclical theory, the following cycle should at least test the previous high. That means that AAPL stock should move to 280 or beyond in the next six to eight weeks.

This analysis says to me its time to move to a long-side bias and a ‘buy-the-dip" mode. Confirmation will come when the stock moves above the 89-day moving average, now at around 255. Support is at the 13-day moving average, around 246. In this choppy market, we'll probably get the chance to buy it there. I will.

Disclosure: No position in AAPL at this time