Using technical analysis may often feel like alchemy even under normal circumstances.  Using it on Apple Inc. (NASDAQ: AAPL) is especially tricky.

Nonetheless, Apple’s stock chart has wavered for weeks.  Now, Wall Street’s darling looks ill, and there are some concerns that Apple’s stock could be in for a rough time.  We wanted to apply the fundamental side of the equation with the technical side to see what may be happening here to see if this is a fluke or if it is justified.

We have witnessed a series of lower highs and the stock just closed again under the key 50-day moving average again on Friday for the second time in this downward cycle.  The stock only had one up-day this week is down -1.98% week-over-week.  After looking at the key market ETFs, the NASDAQ 100 via the PowerShares QQQ (NASDAQ: QQQ) rose by 1.09% and the S&P 500, measured by the SPDR S&P 500 (NYSE: SPY), rose by 1.4%.

First and foremost, we want to know WHY the chart has gone from wavering to ill?  A true technician will say “who knows why and who cares why, it is what it is.”  There are several  possibilities here that have come into play of late and our aim is to ferret out the news from the noise.

Apple now has its iPhone either mostly migrated to or in the process of migrating to a two-carrier model.  AT&T Inc. (NYSE: T) now has Verizon Communications Inc. (NYSE: VZ) in the U.S.  Apple is also getting more and more competition from Google Inc. (NASDAQ: GOOG) in smartphones.  There has been some concern that Verizon’s sell-through rates have not been what some of the more bullish predictions have indicated, but it may still be far too soon to throw in the towel there yet.

Japan may be a catalyst and it may not.  This quake followed by the tsunami followed by the nuclear power plant disaster is creating supply chain disruptions around the consumer electronics community.  Apple has been known to hoard parts and it has been a master of the supply chain, but nothing works perfectly forever.

The analyst community has also not kept its perpetual “BULL-ONLY” stance.  In recent weeks we saw our first real analyst downgrade in Apple.  The call focused on issues of slowing growth at key electronics manufacturing services providers which Apple uses to contract out.  It took real guts to be the first analyst to downgrade Apple.  If there are any hiccups as we get into earnings season then we would at a minimum expect that more analysts might at least trim their price target objectives even if they all keep their official ratings as “buy” and “outperform.”

Another issue is what is happening in PC sales and tablets.  Apple got such a jump on its competitors that it has actually been able to migrate over to the iPad2 before many peers could even get their first generation tablet PC out.  Still, there is one issue to consider.  Tablets are today what netbooks were two years ago.  The dollars spent by consumers on tablets and on netbooks pushed out their spending on new more powerful desktops and notebooks.  Some argue against this, but we may may have reached a point where “good enough computing” has taken over.  How many cores do consumers need in their processors and how much RAM is truly needed these days?  What tablets and netbooks did not take out from desktop and notebook sales, the smartphones of today might be.  It is easy to argue that this is more of a PC issue for Microsoft Corporation (NASDAQ: MSFT) but we have already at least had one admission from Apple that tablets may be cannibalizing its up-sells into MacBooks and Mac computers.  The current weakness in semiconductors has to be tied to what is happening in traditional PC sales at the moment.

We will only give Steve Jobs a bit of coverage.  We see the wolves come out any time there is health news on Steve Jobs.  Apple ultimately can and will exist without Steve Jobs. The problem is that Jobs has historically been so integral in new product development and in product version improvements that it is impossible to say that Apple will not be worth at least something less without Steve Jobs than it is with him.  That being said, we are going to move on from his health issues.

Digital music devices sales have peaked.  Apple already has a lock on digital music with what is probably more than 70% market share in many areas.  Almost everyone who wants an iPod has one, so that future business is going to be tied to upgrades.  If Apple designed these to last for years and years, then who will feel the immediate need to upgrade iPods when they might rather spend that money for the newer and newer versions of iPhone and iPad?  Apple’s growth will now be mostly tied to new music songs sales as they come out on iTunes.  Where we have skimmed over is in movies, books and more in iTunes.  Amazon.com Inc. (NASDAQ: AMZN) and Netflix, Inc. (NASDAQ: NFLX) are the targets and hurdles for Apple to overcome.  Amazon’s Kindle manages to keep selling around holidays. Netflix is still growing by leaps and bounds despite what are supposed to be almost no barriers to entry via Facebook Google, and any other company which can sign a contract with the movie studios.

Another issue is something which many disagree with as being such a negative issue, but it is one which we have noticed on multiple occasions.  Apple is turning its customers into lemmings and we even touted a new terms called “consumer lemmingism” as far as what the company is doing.  The iPad craze took well under a year to be topped by the iPad2.  The iPhone4 finally came to Verizon, but now the iPhone5 is due in just a couple or a few months.  At some point when a company’s customers cannot keep up with the newest and greatest, they could get a bad a taste in their mouth.  The economy is still rough for many and prices on things like gasoline and food do not look like they are going down. Apple has been able to avoid the tie of other discretionary spending in the past, but can that remain the same as it becomes more and more mainstream?

The last issues is Apple’s vast size.  Its market cap is $317.4 billion now.  When Apple was at $100.00 it seemed that the markets might not be able to drive it higher and higher endlessly.  At issue is that when large caps become mega-caps it does require at some point that real share demand in supply and demand are supported by real share buying each day to drive shares higher.  Enough on the lecture on market caps.  The positive side of the equation is that Apple is not expensive in stock valuations.  The stock trades at 15-times 2011 earnings estimates and just under 13-times 2012 earnings estimates using Thomson Reuters consensus data.

OK, so you probably think that the cautionary tales above are meant to be one-sided against Apple.  That is not the case.  Remember, we are just trying to get to the bottom of what on earth is wrecking Apple’s stock chart and why it has run into performance anxiety as far as its stock is concerned.  A true technician doesn’t care what issues are causing a weak chart.  They just care about the chart being weak.  We use more of a fundamental approach in our own analysis, but we also admit that failing to at least look at a chart and failing to at least consider what that chart is telling you may be even worse than only looking at a chart and throwing the fundamentals out the door.  Think “technimentals.”

So let’s digest this stock chart in more detail below….

If you look at the chart below from StockCharts.com, Apple’s “technimentals” look bad.  In medical terms, the patient looked sick but things are getting worse rather than better.  Look at February, March, and now April.  Shares peaked with earnings in January, then one last run came with a peak close to $365 in February.  We have seen nothing but a series of lower highs on three separate occasions.  The share price violated the 50-day moving average in mid-March and managed to get back above that 50-day moving average about a week ago.  The problem is that the stock gains petered out at what was the third lower-high, and on Friday we saw Apple fail to hold its 50-day moving average again as that level is $347.55 and Apple’s shares closed down 1.13% at $344.56.  If this does not rectify itself in a couple of days, technicians will be calling for blood.

Another issue to consider is the so-called Bollinger Bands which are meant to smooth out much of the noise that can be seen around moving averages.  These basically imply peaks and floors of trading ranges in normal circumstances.  The Bollinger Bands have started to narrow but this week and Friday’s close in particular looks to have created the sharpest drop of the top-end of that band in months.

In simple RSI terms and in MACD terms which are also shown in this chart, neither of these levels are signaling very oversold technicals.  That means that things could continue to get worse before they get better or before the selling pressure becomes overdone.  More fodder for the technicians to hang their hats on.

One last area of the actual chart analysis is Point & Figure charting.  This is the part of technical analysis where we have generally chosen to avoid spending much time.  Some technicians live and die by point and figure charts.  To us it seems more like a bunch of X’s and O’s with numbers randomly thrown in.  That being said (again), some technicians live and die by this.

StockCharts.com breaks out in its gallery view a Point & Figure chart that looks and feels like a scenario far worse than what we are expecting and something far worse than any of Apple’s shareholders would hope for.  This point and figure chart shows a Low Pole Reversal on March 24 as a traditional 3 box reversal chart (now you know why usually skip point and figure analysis unless it is someone else’s work).  The problem is that this point and figure analysis from StockCharts.com shows that is now a bearish price objective of $292.00.  Ouch.  Keep in mind that those point & figure levels will potentially change each day so that $292.00 level may not be the same after Monday.

Now for the good news.  If you look at the weekly charts in the full chart gallery, Apple has not been in quite as deep of a violation as you might have expected if you just read the near-term ‘technimentals’ above.  There was a part in 2010 where the stock looked much worse on the weekly charts and Apple shares were down in the $240 to $270 price range then.  Consider one other thing.  Come Monday, last week will feel like a year ago.  One new analyst upgrade or one new high price target will remove any of these fears if the stock market cooperates.

Even at $344.56, Apple’s 52-week range is listed as $199.25 to $364.90.  It is easy to say that Apple still has quite a bit of cushion before long-term investors have to start worrying.  Using simple 52-week ranges might not even make that scarier Point & Figure objective of $292.00 seem so bad.  Analysts also have a consensus price target objective of just over $424.00 and there are still some $500.00 value target calls out there.

This is not meant to be Apple-bashing even if it sounds that way.  Charts are charts and technicians have the same number of excuses when technical analysis fails just like when fundamental analysis fails to catch certain trends.

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JON C. OGG

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