Shares of Apple Inc. (NASDAQ:AAPL) dropped another 2% on Thursday as the broader stock market erased all of Wednesday’s post-FOMC rally. Apple stock has looked weak for the most part of 2015, and now it has arrived at a crucial juncture through both the longer and near/medium-term lens.
Bulls would be wise to respect that heavy look of AAPL stock, while active investors may find opportunities on the short side for the time being, particularly on bounces.
While the broader U.S. stock market on Wednesday celebrated the Federal Reserve’s first interest rate hike in about eight years, some big-name stocks barely budged. AAPL stock too bounced off its intraday lows on Wednesday following the Fed but on a relative basis the bounce looked weak, which indeed was confirmed with Thursday’s beat-down.
Feeble bounces followed by big smackdown selling days is not what a healthy stock is made of.
To be clear once more, I am not a long-term bear on Apple stock or Apple the company. I think AAPL will do many more great things for a long time to come, and that ultimately should lift shares over time. What I am about to show you on the following charts are near- to medium-term concerns — something traders can capitalize on, and something that even longer-term investors should pay attention to.
Apple Stock Charts
First up is the multiyear picture of AAPL stock, which quite simply shows us a scary-looking formation that technically we refer to as a head-and-shoulders top formation.
Unlike an academic or some other non-practitioner of the markets, however, I will tell you that these big head-and-shoulders patterns rarely work out quickly (i.e., they don’t lead to immediate big sell-offs but rather take time to a) develop and b) resolve lower.)
What the chart shows is that AAPL stock in the first seven months of 2015 developed a triple-top, and with the oversold bounce in the autumn developed the right shoulder of the pattern. From here, a marginal break below the black “neckline” support line should lead to another oversold bounce before Apple shares can see a better resolution lower, and they may tumble into the mid- to high $80s. That’s where longer-term investors may find better entry points to the stock again.
On the daily chart, note that the “oversold bounce” from August into early November retraced just about 75% of the entire sell-off from the July highs into the August lows. This 75% retracement also coincided with horizontal resistance as well as the stock’s red 200-day moving average. In other words, AAPL stock found resistance at a key confluence resistance area.
The selling over the past week or so now has the stock sitting on defined support, which if and when broken could lead to more weakness before a potential year-end bid in stocks also spills over into Apple stock.
Instead of shorting a stock like AAPL into the hole, a better reward to risk strategy is to sell it on bounces. So, this is not a call to aggressively bet against the stock in the near-term but rather keep the bigger-picture heavy feeling of the stock in mind. Sell or short the stock on rallies upon bearish reversals. If the stock wants to remain weak it should not overcome its early November highs in the $120s.
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.
