On Jan. 8, I made a rather unpopular call saying that Apple (NASDAQ:AAPL) likely would fall from its then-price of $525 to somewhere between $480 and $460 in the near-term.
Thanks to yesterday’s purge, AAPL has blown through that target — so now it’s time to review the charts again.
The mean-reversion move back into the longer-standing channel also overshot, as Apple stock now trades below it. As a reminder, stocks with steep up-trends that lead to vertical moves — such as what AAPL did in the first three quarters of 2012 — have a high probability to mean-revert over time.
Furthermore, the more such a stock becomes cult, the more severe this mean reversion ends up being. Given the almost religious following by many investors of Apple, it is not at all surprising to see the stock accelerate downward with the magnitude it has over recent weeks.
Yesterday’s price gap lower has, by most technical analysis, sunk the stock into deeply oversold territory, at least in the near-term. Apple now sits some 24% below its 200-day simple moving average (red line on chart). Yesterday’s big selloff on way-above-average volume also pushed the stock into deeply oversold values as measured by momentum indicators such as stochastics. AAPL does have some horizontal support down near $425, which dates back to late 2011/early 2012; however, traditional technical analysis is best left out here for the moment.
Given the still-massive following that Apple enjoys, I am in no rush to do anything on the long side (or the short side for that matter) for now. The media hype around the stock — and hence the emotions involved — are simply too much for a high-probability trade in either direction at the very moment.
In short, Apple stock needs to settle somewhat before anything but a scalp reaches good risk/reward.
Trade for steady profits, not for entertainment.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter here.