Apple just flashed the mother of all buy signals

Key Points

• Apple has lagged the broader market since the middle of last month. 
• Historically, its shares have always bounced back once the technical indicators pointed to them being oversold. 
• Last Friday, we saw an oversold reading on the RSI, and shares are already being snapped up.  

While it was one of the first stocks to reclaim an all-time high last year, Apple Inc NASDAQ: AAPL has found itself lagging the broader market in recent weeks. The divergence is rare and noteworthy as a result. To be sure, Apple stock experiences its fair share of down days, but these are usually in tandem with the rest of the market. 

However, when Apple shares started to soften in the week before Christmas, the benchmark S&P 500 index was inching upward towards a record close. Coming into this week, the gap was quite pronounced. Where the S&P 500 had managed to stay just about flat since the 18th of December, shares of Apple were down almost 10%. 

All that being said, though, we don’t expect this divergence to become permanent and, in fact, see a serious buying opportunity in Apple shares opening up. It rarely happens, but when Apple’s Relative Strength Index (RSI) hits 30 or below, it’s almost always followed by a fresh rally. And the good news? Apple’s RSI tagged 28 last Friday. 

Oversold RSI

A stock’s RSI runs between 0 and 100 and essentially tells you in a quick and easy way if a stock is overbought or oversold. It typically takes into account the most recent 14 days of trading history and spits out a number. A reading of 30 or below points to shares being oversold and due for a bounce, while anything above 70 suggests they’re getting quite heated and could be due to pullback. 

Taking a look at Apple’s chart and its RSI, we can see how reliable it is as an indicator to buy when it's at 30 or below. Before last Friday, the most recent tag down there was seen towards the end of October, when Apple’s RSI hit 30. That was the low for the stock, and within six weeks, that is, through the middle of December, Apple shares jumped 20%. Going back further, the RSI tagged 27 in the middle of August. This also marked a low, and within a fortnight, shares were up 10%. 

And to take one more example, let’s look at the stock’s RSI from December 2022. Apple shares had been trading softly all month as part of a broader 30% slide that had started the previous August. However, once the RSI broke below 30, the bears gave up, and the bulls stepped in. The stock set one more low the following day and then started a multi-month rally that’s only recently taken a breath, gaining as much as 60% in the meantime. 

Indeed, this signal has become so reliable that we’re already seeing investors acting on it. Yesterday, shares of Apple jumped more than 2%, a pop that also pulled the RSI up out of the danger zone. While some concerns have been raised recently as to Apple’s valuation and continued growth prospects heading into 2024, it remains one of the hottest stocks to own out there. 

Bullish prospects

MarketBeat’s MarketRank forecast tool has the stock ranked a Moderate Buy, and coupled with the fact it has a street-high price target of $250, we’re inclined to think we may have just seen the low in Apple shares for the foreseeable future. Unless fresh doubts emerge about the company’s ability to get through the antitrust headwinds forming in the distance, this is still a stock that’s more likely to finish the year higher than where it started rather than lower. 

Look for shares to consolidate above the $180 mark, which is where the bears ran out of steam last week. While an RSI that screams oversold doesn’t exactly guarantee that a recovery rally is about to form, based on recent history with Apple, it’s a pretty safe bet.