Following the earnings-spurred selloff in Apple (NASDAQ:AAPL) in late January, I discussed how risk/reward in the short side was worsening. The emotion-filled stock has since bounced, then continued to slide lower to where it currently sits — 3.5% below my note in late January.
So, what has changed since my last musing?
From a pure price-action point of view, Apple is flashing a very steep slope since the September 2012 top. In short, risk/reward on the long side of the stock is slowly getting better.
Let me be clear: I am not calling for a bottom here, but given that AAPL has now consistently slipped lower over the past five-plus months, a tradable bounce with defined risk might set up sooner rather than later. (In full disclosure, since my late January take, I have made some trades of the quicker variety in Apple but refrained from any more meaningful risk-taking.)
Allow me to make my case with the help of a couple of charts.
Given the steep selloff in Apple, we now have to zoom out pretty far to find support levels and other reference points. So, let’s start off with my trusty longer-term chart, which tells you everything there is to know about AAPL’s bigger picture.
The two trends I would like to point out are clearly marked on the chart. Note that during the uptrend, the steeper the slope got, the more unstable the price action became. The current downtrending channel will likely turn out the same way — the steeper the slope, the closer we get to an eventual low, or at least a level to lean against on the long side for a swing trade.
However, over the coming days and weeks, I want to focus closer-up on the daily chart of Apple.
On the upside, there are several reference levels I have on the radar, the breach of each of which is telling for the stock:
- Simple lateral support near $435, which the stock broke below March 1.
- The downtrend line (blue) dating back to the September 2012 highs.
- The 50-day simple moving average (orange slope), which has acted as good resistance on any bounce since October.
Each of these levels has the power to push the stock to new intermediate-term lows. Why?
Apple was and continues to be a very crowded stock. Those long the stock will look to sell into rallies, thus likely limiting the upside in the stock over a three-to-six-month time frame.
So, at what point would I try the stock for a swing trade to the long side?
I am keeping my eyes peeled for major reversal/seller-exhaustion candles and positive divergence of momentum oscillators vs. price on this nearer-term chart that would scare the bears enough to get out of the way and allow the stock to rise 10% to 20% without too much headwind.
If and when these signals arrive, you will be sure to hear from me.