by Serge Berger | January 31, 2014 9:47 am
I recently mapped out key near-term levels of support and resistance for Apple (AAPL), and following this week’s slid in Apple stock, shares are now sitting at the lower end of my support area.
We received the third-quarter Apple earnings report on Monday afternoon, and the company beat on both the top and bottom lines, but thanks to disappointing iPhone numbers and Q4 sales guidance, Apple stock sold off by close to 8%.
Investors hoped Apple’s recent deal with China Mobile (CHL) would quickly show up with a big boost to sales. At the margin, sales in China did help. And even though in the conference call, Tim Cook said Apple’s phones will be available in 300 Chinese cities by year’s end thanks to China Mobile, investors still weren’t satisfied and drove down AAPL.
More specifically in terms of price action, the post-earnings sell-off snapped a six-month uptrend in just one day. In other words, the July 2013 uptrend that started after Apple stock formed a technically sound double bottom is now broken.
Last week, I highlighted the numerous single-day rallies in recent weeks that quickly failed, as well as the narrowing trading range in the days leading up to the earnings report. These were ominous signs that Apple stock would make an outsized move after earnings, but given that gambling on a certain outcome after an earnings report is a low-probability trade, there wasn’t much to do in AAPL except for longs to reduce or hedge positions going into the report.
Apple stock is right at the lower end of my second support level, around the $500 mark. Should this level fail to hold, then a next point of attraction is $475-$485. Unfortunately, for traders looking to play AAPL from the long side, it now needs to reset and consolidate before giving off better opportunities again.
Patience remains key when trading Apple stock.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.
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