Apple Breaking to Resistance?

This is a weekly chart of Apple (AAPL) as measured relative to the S&P 500 ETF (SPY).

The chart has been arbitrarily adjusted in magnitude (x1000) to improve visibility of price movement.

One should always analyze an asset's performance relative to the performance of the broader index before choosing to invest. If an asset is underperforming the broader index, one would be better off just investing in the broader index than investing in the underperforming asset.

Few people may have known that, under the surface, Apple has been resisted downward since August 2020 in its chart relative to SPY. In other words, this means that since August 2020, even though the price of Apple has gone up it has generally not outperformed the SPY.

This weekly relative chart between Apple and SPY shows that Apple may be attempting a breakout relative to SPY. Even though Apple's charts look somewhat weak on the higher timeframes (3M, 6M, 12M), this chart may suggest that Apple will at least attempt a breakout in its performance relative to the SPY. The weekly candle closed above the resistance line, and the Stochastic RSI oscillator is showing strong upward momentum on the weekly timeframe. Additionally, the weekly exponential moving average (EMA) is creating an ascending triangle pattern with the resistance line (not shown on chart). In 75% of cases, an ascending triangle is a continuation pattern, which in the context of Apple would mean a bullish breakout.

It's important to realize that relative price charts like this do not necessarily predict price action. In other words, since this is a relative chart, Apple may break out in this chart, and yet its price actually falls. This can happen if the SPY is falling faster than Apple. The best time to use this kind of chart, therefore, is when you think the SPY has made a significant bottom and will rise. Rather than investing in the SPY as its price rebounds, why not amplify your returns by investing in an asset that is likely to outperform the SPY?

Some consider this a "seeking Alpha" approach. Alpha is a term used in investing to describe an investment strategy's ability to beat the market. Strategies that are able to generate greater alpha (or return relative to the market), without introducing greater risk to your portfolio will increase your Sharpe Ratio. In this case, Apple is slightly more volatile than SPY and therefore introduces slightly more risk than owning SPY. One can mitigate this by analyzing all of one's portfolio holdings relative to SPY and selling an underperforming asset that is also more volatile than SPY and then purchasing an asset, (like Apple), that is likely to outperform SPY and which is equally or less volatile than the sold asset.

For example, compare the below charts of T-Mobile US (TMUS) and Verizon (VZ). Both charts are quarterly charts (3-month charts) and are relative to SPY. Relative price action for the past 10 years is shown. (Neither chart is adjusted for dividends). Although TMUS is slightly more volatile, it is generally in line with VZ. If given the choice between the two, which would you rather add to your portfolio?

T-Mobile US (TMUS) trending toward infinity relative to SPY:

Verizon (VZ) trending toward zero relative to SPY:

Not investment advice.

Comment:

In my trading experience, I have learned to always consider the strongest bull and bear case before entering a trade. One bear case for the Apple to SPY ratio could be that it's in an ascending wedge. Typically ascending wedges break to the downside.

Comment:

Hey everyone, I really looked at this chart some more and there are some major bearish signals (see my chart below). I will add that I don't think I have ever seen bearish divergence on a 6-month chart before. That is about as high of a timeframe as you will ever see it. What does this all mean? Well, it could mean that in the long term, for many months, if not years, Apple will not outperform that broader index (SPY). It has generally been underperforming SPY already since late 2020. Now with that said, I've seen fakeouts many times before, whereby the stock can blast higher for a period of time before finally collapsing, so it's possible that Apple has more outperformance to go, but it is clear that it is in a late cycle. In fact, the 6M Stochastic RSI oscillator is already turning downward, as has the quarterly chart and the yearly chart. Obviously, anything can happen, but this is merely what the chart is suggesting.

Comment:

Apple's breakout relative to SPY turned out to be a major fakeout.

Now Apple's price is falling out of the sky.

Here's a question to answer: If Apple is doing so poorly relative to the S&P 500, and the S&P 500 looks ready to decline further, how far might Apple fall?

Only time can tell, but I fear the biggest decline is yet to come.