Is It Time to Buy Apple Inc. (AAPL)?

Apple Inc. (NASDAQ:AAPL) is oversold -- so is it time to buy the stock?

by Josh Selway

Published on Dec 21, 2015 at 1:45 PM
Updated on Jun 24, 2020 at 10:16 AM

Apple Inc. (NASDAQ:AAPL) is trading higher today, following news the company has agreed to a patent licensing deal with Ericsson (ADR) (NASDAQ:ERIC) -- and despite a price-target cut to $142 from $145 at BMO Capital. The stock has added 1.1% at $107.18 -- a welcome change for a stock that has underperformed the S&P 500 Index (SPX) by 11 percentage points in the past three months, and dropped about 9% in December alone. 

As we noted recently, short interest has been rising on the tech stock. Specifically, short interest increased by almost 53% in the latest reporting period. 

And while short sellers have been rushing to AAPL, option bulls have been disappearing. Schaeffer's Quantitative Analyst Chris Prybal has noted that call open interest on the stock is flirting with annual lows. In fact, overall open interest on AAPL has dropped by roughly 40% compared to this time a year ago.

Today, however, option traders are making noise on both sides of the aisle, with call and put volume both accelerated. Buyers may be looking to take advantage of relatively low premiums on AAPL's near-term options. Notably, the stock's Schaeffer's Volatility Index (SVI) stands at just 28% -- lower than nearly 70% of all readings from the past year. This means the stock's options are relatively cheap, from a volatility perspective. 

It's also interesting to note that Apple Inc. has hit oversold territory, according to its 14-day Relative Strength Index (RSI) of 29. This is the third time this year AAPL has hit oversold territory, according to Schaeffer's Senior Quantitative Analyst Rocky White.

The tables below come courtesy of White, and illustrate how the stock has performed following these signals in the past, compared to its anytime returns. As you can see, the shares generally outperform, with a post-signal one-week gain of 3.2% versus an anytime gain of just 0.4%. This trend extends all the way out to two months (4% vs. 1.7%), but by three months, the anytime return is actually superior to the post-signal return (4.2% vs. 2.6%).

151221aapl2

Looking more closely, Apple Inc. (NASDAQ:AAPL) has fared very well in 2015 following oversold signals. The chart below shows the shares gained over 7% in the subsequent week, so today's pop may be just the tip of the iceberg.

151221aapl1


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