Apple (AAPL) Stock Is Too Heavy to Tackle Now

Advertisement

Apple Inc. (NASDAQ:AAPL) shares closed on Monday about 16% off their year-to-date highs — not a major drop in the bigger picture, but investor sentiment (according to my proprietary readings) remains worryingly high. To be sure, even with Monday’s 2.6% drop in the S&P 500, AAPL stock “only” shed 2%.

Beat the BellUltimately, however, the dynamics of Apple stock’s large market cap and presence in just about everyone’s portfolio stands a good chance of weighing on AAPL stock more in the near to medium-term.

After Monday’s broad-market selloff, the benchmark S&P 500 is now lower by nearly 12% since the highs in May. As I often point out, correlation among stocks and sectors tends to spike during risk-off periods. This fact alone makes it unlikely that shares of Apple stock will be able to buck the trend and somehow shoot higher as global risk assets get dumped.

However, from a risk management perspective, this isn’t to say that AAPL stock must fall sharply — but it does at least cap near-term upside potential.

A quick glance at my Apple contra-stream on Twitter where I measure sentiment in the stock on Monday revealed mostly bullish touting and many traders and investors calling for the stock to turn back up toward the $120 mark very soon. While anything can happen, the path of least resistance as we will see on the following chart and considering the broader environment for stocks looks to be lower.

To contextualize the structural environment for a stock like Apple, let’s understand the following: The S&P 500’s year-to-date performance as of Monday’s close is now -8.5% while AAPL stock remains marginally higher. Thus the question becomes (particularly into this week’s quarter-end) whether investors this time around will look to window-dress their portfolios and dump winning stocks in favor of “better-looking” ones like Apple, or if they will take profits where they can (in stocks like Apple).

Considering the increasing pressure on portfolio managers given the volatile third quarter, the latter seems to be the more probable outcome.

AAPL Stock Charts

On the multiyear logarithmic weekly chart, we see that AAPL stock in August broke below its 2009 uptrend as well as below its 70 week moving average (red line). The stock has been consolidating below these two former lines of support ever since and looks to favor at least one more test lower.

AAPL stock charts weekly
Click to Enlarge

On the daily chart, we see that AAPL stock began rejecting its downsloping yellow 50-day moving average over the past two weeks. With Monday’s 2% drop, Apple shares also broke below their bear flag pattern that formed as a result of the rally off the August lows.

With a layer of overhead resistance and most medium-term moving averages already pointing lower, AAPL stock looks to face an uphill battle.

AAPL stock charts daily
Click to Enlarge

Active investors could look to short the stock for a move back into the low $100s while respecting any sharp bullish reversal.

Like what you see? Sign up for our daily Beat the Bell e-letter and get investment advice delivered to your inbox every morning!

Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/09/apple-inc-aapl-stock-will-feel-heavy-along-broader-market/.

©2024 InvestorPlace Media, LLC