One day doesn’t make a trend, but Tuesday’s price action in Apple Inc. (AAPL) does continue to grow the bear case against AAPL stock.
For shorter-term traders, we have an idea for how to position yourself for this developing move.
Tuesday’s decline of 0.83% in AAPL stock in the face of the S&P 500’s own 1.1% gainer is the latest hint that Apple is not the special sauce it once was. Behind the weakness in AAPL stock, I came across three items within three pages of fresh hot-off-the-presses insights on the tech behemoth that’s never short on press coverage.
- A new survey suggesting unhappy, early adapters of the Apple Watch.
- A bearish-sounding note from a second- or third-tier investment house expecting a slowdown in the March quarter for the iPhone could be another source behind Tuesday’s agitated AAPL stock.
- Lastly, a story on Apple Pay being a flop thus far this holiday season is another possible reason behind AAPL stock’s rotten price action. (Or not.)
Apple Stock Daily Chart
Click to Enlarge
The line I’m referring to is the closely watched 200-day simple moving average. And following one brief stay of less than two days above the key long-term average, it has acted as overhead resistance for the past month in AAPL stock.
Coupled with continued relative weakness that’s enmeshed itself in AAPL stock since the August 24 mini-flash crash lows and pricey overall broader market valuations that keep us cautious, AAPL stock is on my short list of bearish-acting large caps.
And yes, we are aware of the irony in our stance of AAPL stock being a short despite Apple’s own much healthier-looking fundamentals compared to the S&P 500.
Currently and in examining the daily price action a bit more closely, AAPL stock’s continued relative weakness on Tuesday resulted in shares confirming a bearish weekly lower high, and a double-top pattern.
The first high of the pattern found on the provided daily view was shortly after a two-step pattern at “D” completed, and as noted above, AAPL stock managed a very brief fling above the 200-day SMA.
The second high was confirmed Tuesday as AAPL stock just pierced the lows of last week’s inside candlestick of $117.12 before settling fractionally higher at $117.31.
Apple Stock Bear Put Spread
Click to Enlarge
Once more, though, a spread is the preferred method here. This way, we can effectively reduce unwanted decay and volatility risks.
In reviewing the Apple stock options board, the weekly Dec. 24 $118 / $114 bear put spread for $1.55 or cheaper is attractive.
With AAPL stock at $117.31 the spread’s breakeven of $116.45 is about 0.80% below the current price. The $1.55 cost of the vertical compares favorably to buying the outright December 24 $118 put for $2.80.
This AAPL vertical is 80% less and allows the trader to find breakeven a full percentage point above the outright long put at expiration.
Capturing profits if Apple shares fall quickly is slower to play out with a spread like this compared to a long put. However, this is still a short-term vertical that will expand nicely if AAPL stock begins to retreat and makes it way below the lower strike prior to expiration.
And should AAPL stock find its way below $114 on Christmas Eve, $2.45 in profit will make a nice present right on time for the holiday.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
