Panic seeped into Apple (AAPL) on Thursday sending the tech juggernaut tumbling 2% on heavy volume.
The distribution day officially ushered Apple stock into correction territory — at yesterday’s lows, the stock had fallen by more than 10% from its highs.
Of particular interest to chartists is the 200-day moving average test that occurred Thursday. Given AAPL stock’s persistent strength over the past few years, it has remained well above the popular long-term moving average the majority of the time.
The past three instances of AAPL declining to the 200-day MA have been met with successful rebounds and with today’s up gap it looks as if we can add a fourth victory to AAPL stock’s resume.
In fact, Thursday’s heavy volume dive to the pivotal long-term moving average reeks of short-term capitulation. Today’s sharp recovery arguably confirms that.
From a trading perspective, it would have been easier to exploit the pivot low had Apple stock formed a clean reversal candle today, then started to rally. The overnight gap robbed us of the ideal entry for capitalizing on a recovery.
Nonetheless, Thursday’s low — which coincided with the 200-day moving average near $119 — can now be treated as a line in the sand for Apple’s stock price. So long as we remain above that threshold, the hopes for a rally into its upcoming earnings announcement remain alive.
Should Apple’s stock pop turn rotten leading to a breach of $119, exit bullish plays accordingly.
Apple Trade Idea
If you think today’s rally has legs, consider selling the Aug $115/$110 put spread for 90 cents to profit. The max reward is limited to the initial credit and will be captured provided Apple stock sits above $115 at August expiration.
The max risk is limited to the distance between strikes minus the net credit, or $4.10, and will be lost if AAPL falls beneath $110.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
