Apple’s Stock On The Run, Is It Time To Sell? Ask The AI engine

by Trefis Team
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Question: With Apple’s stock up over 25% in the last quarter, many Trefis users asked: how likely is it that the rally will continue over the next week, next month or the next quarter?

Answer: Turns out, according to the Trefis Machine Learning Engine, if you’re looking for an additional 10% gain at the back of this run, there is only about a 4% chance that could materialize in a week, and about 23% likely over a month. However, a 10% additional gain is a pretty nice 44% likely over the next quarter. Moreover, this 44% chance of a 10% gain is much higher than the roughly 25% chance of a 5% drop over the next quarter.

What about the possibility of a 10% drop in Apple’s stock after such a run? You can test the answer and many other combinations on the Trefis AI Engine for Apple Stock: Chances for Rebound after a Fall, or, the chance of a Dip after a Rise.

 

Below, we also discuss a few scenarios and answer common investor questions:

Question 1: Does a rise in Apple stock become more likely after a drop?

Answer: Consider two situations,

Case 1: Apple stock drops by 5% or more in a week

Case 2: Apple stock rises by 5% or more in a week

Is the chance of say a 5% rise in Apple stock over the subsequent month after Case 1 or Case 2 occurs much higher for one versus the other?

Interestingly, for Apple, the answer is not really. The chances of a 5% rise over the next month (21 trading days) is about 40% for Case 1, i.e. when Apple’s has just suffered a sizable loss, versus about 41% for Case 2.

 

Question 2: What about the other way around, does a drop in Apple stock become more likely after a rise?

Answer:

Consider, once again, two cases

Case 1: Apple stock drops by 5% in a week

Case 2: Apple stock rises by 5% in a week

The chance of a 5% drop after Case 1 is about 29%, versus about 26% for Case 2. For comparison, for the S&P 500 and for many other stocks, it turns out the chances of a 5% drop after Case 1 or Case 2 has occurred are also quite similar.

 

Question 3: Does patience pay?

Answer:

If you buy and hold Apple stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For after a drop of 5% in Apple stock over a week (5 trading days), while there is only about 21% chance the stock will gain 5% over the subsequent week, there is more than 49% chance this will happen in 3 months, and 60% chance it’ll gain 5% over a year (about 250 trading days).

The table below shows the trend for Apple stock:

 

Question 4: What about the possibility of a drop after a rise if you wait for a while?

Answer:

There are two opposing forces at work on Apple stock here. First, is the general positive bias for Apple stock (and for most other stocks) – that pulls the stock upwards with time. Second, the basic chance of a drop, as a chance of any event happening, should simply increase with the passage of time.

After seeing a rise of 5% over 5 days, the chances of a 5% drop in Apple stock are about 25% over the subsequent month of waiting (21 trading days). However, this chance drops slightly to about 23% when the waiting period is a quarter (63 trading days).

 

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