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Real Time Insight

Apple (AAPL - Analyst Report) rallied sharply yesterday on the back of news that Carl Icahn had taken a large stake in the company. He called the stock undervalued and played up the idea of a buyback.

Technically, AAPL rallied and broke above a basing pattern. It looks ripe to reverse the downtrend which began in the fall of 2012.  The base formation spanned from about $385 to about $470.  Chart watchers probably see the base pattern putting the $550 area in play, and the chance for a material retracement of the decline from $705.

Fundamentally, AAPL holds an attractive valuation. It is trading with a PEG ratio of just 0.84 and a 12 month forward PE ratio of 11.5.  It is also priced at a relatively low 3.9 times tangible book value (the 10 year median is 5.5).  The trade is very sober about competitive pressures in the smart phone and tablet space.

AAPL is a major weight in key indices.  At the end of July, it was the largest weight in the S&P 500 ETF (SPY - ETF report) at 2.83%.  As of yesterday it was the biggest weight in the NASDAQ 100 ETF (QQQ - ETF report) at 13.1%.   A rally in AAPL could have a material impact on market psychology.   Strength in AAPL could also have a spill over impact on its suppliers.

RTI Question: Is AAPL on the cusp of a meaningful rally?   If so, is a rally in AAPL the catalyst for a sustained rally in the S&P 500 over 1700?

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