Are You Waiting to Buy Apple at $527?

Rick Aristotle Munarriz, The Motley Fool
Updated

It's funny to see how quickly analysts went from talking about the ceiling at Apple (NAS: AAPL) to discussing the floor. Some of Wall Street's more aggressive pros were eyeing four-figure price targets last month, but now everybody's playing limbo.

How low will Apple go? At least one analyst has an answer -- $527.

Technically speaking
Merlin Securities chief market strategist Rich Bensingor issued a note earlier this week, suggesting that Apple's stock could go as low as $527 based on technical analysis.


Chartists will argue that you can predict a stock's movement based on its chart, as trading patterns and moving averages help identify trends and areas of support. Bensingor's read sees $527 as a possible bottom.

After seeing Apple's stock fall markedly from an all-time high of $644 earlier last month, exasperated longs, gleeful shorts, and fence-straddling opportunists are all asking the question that Bensingor is trying to answer.

I just wouldn't wait for Apple to hit that exact price point.

The hole in technical analysis
I don't have a beef with technical analysts. Many of them make a cozy living playing the market, so their strategy clearly works more often than it doesn't. However, there isn't a single chart that will tell you when one of the many events that may move Apple shares higher of lower will take place. Apple doesn't operate in a news vacuum. Good things and bad things happen. Apple moves on its fundamentals, even if it means defying what a read of the chart would seem to suggest.

Let's go over some of the positive catalysts that can happen with Apple in the coming weeks and months.

  • The iPhone 5 is a lock to come out this year. What if it comes out early this summer instead of in the fall? Now that AT&T (NYS: T) and Verizon (NYS: VZ) have their 4G networks in place to the point where the new iPad can come in a 4G flavor, why delay the next iPhone generation the way Apple did last year?

  • The iTV, a full-blown Apple HDTV, seems to be in the works. It even came up in Steve Jobs' authorized biography last year. If Apple can do to televisions what it did to mobile and tablet computing, look out.

  • Apple can continue to post blowout earnings, forcing analysts to keep jacking their profit targets higher. Did you know that Wall Street now thinks Apple will earn more than $47 a share this fiscal year? These same pros thought Apple would earn less than $35 earlier in the fiscal year. Apple's stock has had a good run over the past year, but it's now trading at 12 times this year's earnings.

There are also naturally some negative catalysts that can pull Apple down.

  • Microsoft's (NAS: MSFT) Windows 8 may be a game-changer, especially in tablets, where Microsoft has so far been a nonstarter.

  • Microsoft is shelling out billions to Nokia (NYS: NOK) in an aggressive attempt to catch up to Apple and Android smartphones. This is 58% of Apple's business, so it needs to be protected.

  • Verizon and AT&T are starting to get vocal about their displeasure over the hefty subsidies they have to pay to carry the iPhone. If anything changes on that front -- forcing Apple to cut prices and sacrifice margins or raise consumer-facing prices and sacrifice market share -- Apple will take a hit.

The lists don't end there. You can think of so many things that can go right (the new MacBook Air portables rock) and wrong (the new MacBook Air portables don't rock), and these events will never time themselves to make sure they're in accordance with where a chartist sees support or resistance.

And since Apple has gotten things right far more often than it has gotten things wrong, the smart bet has to be that Apple never tests $527.

Apple jacks
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At the time thisarticle was published The Motley Fool owns shares of Microsoft and Apple.Motley Fool newsletter serviceshave recommended buying shares of Microsoft, Apple, and Nokia and creating bull call spread positions in Apple and Microsoft. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributorRick Munarrizcalls them as he sees them. He owns no shares in any of the stocks in this story and is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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