This outlook is going to ruffle some feathers, but that doesn’t mean it’s not accurate: Shares of Apple (Nasdaq:AAPL) – the undisputed king of cool technology – are positioning for a downside move. In fact, they’ve already doled out part of this punishment for excessive gains over the past two years.
Unfortunately, more downside is likely to be on the way.
Just to preface this bearish take on Apple, it isn’t a judgment call on the company’s fundamentals or valuation. Trading at only 15 times its trailing earnings and 11 times its forward-looking earnings, and backed up by a long string of earnings beats to boot, the stock has the numbers to back up a lot of bullishness.
Whether it should or shouldn’t fall, however, is irrelevant. If a stock’ is sinking, then its owners are losing money — period.
As it turns out, Apple’s shares are sinking, and its chart is dropping hints that more of the same is on the way.
The chart-watchers’ bearish argument here is three-fold.
- AAPL is now under its 200-day moving average line (green) for the first time since early 2009. This return into rare territory has spooked more than a few traders, and it creates a scenario where the worse something gets, the worse it’s likely to become.
- Apple shares have made a string of lower lows and lower highs (orange). Were each of the major lows or highs since February just a one-off event, it would mean nothing. We’re seeing a pattern develop here, though, with lower lows and lower highs following one another. In fact, we’ve now seen the pattern play out three times, meaning traders are in that groove and may well create a self-fulfilling prophecy.
- It wasn’t clear until last week, but it’s crystal clear now — the selling volume is picking up. For any trend to have longevity, it at least has to have a consistent number of participants trading in that direction. A growing number would be even better. With this stock’s accumulation-distribution line now also reaching lower lows, we can say with certainty that the stock’s selloff is drawing more sellers out of the woodwork.
On a more macro technical level, we’re starting to see bearish crosses of several key moving averages (20 days under the 50-day line, and the 50-day average now under the 100-day moving average line, etc). While the actual buy/sell signals suggested by such moving average cross-unders are a little hit and miss, it still suggests that the previous bullish momentum has faltered, and bearish momentum is developing.
That said, in the very short term, we may see something of a brief rebound, but don’t make the mistake of reading more into it beyond that.
Monday’s dip to a low of $310.50 – and its subsequent move higher after the lower edge of the bearish trading range was brushed – implies another bounce is developing, much like the ones we saw the last two times this same support line was met on March 16 and April 18. The fact that AAPL left behind a gap between Friday’s low and Monday’s high only further bolsters the ‘bounce’ argument [chart gaps rarely go unfilled].
Keep in mind that Apple could very easily make it back up to the upper edge of this falling trading range, and still not snap out of this bigger-picture bearish rut it’s been in since March.
Assuming it can make its way there as a result of Monday’s reversal effort, what happens back up in the $333-$343 zone will make or break this stock. Only a couple of closes above the upper side of the falling trading range will be convincing evidence that the stock’s shrugged off its new bearish pattern.
Considering what we’ve seen so far, however, this is a case where current owners may be better served by selling into that short-term strength rather than buying into it. The upside to all of this is, once we finally get the last lower low from Apple’s shares, it’ll be bargain-basement priced for long-term owners. In the meantime, it looks like a sluggish summer for shareholders.
