It’s another morning where futures were down more than half a percent before the open. As we said yesterday, the signs that the professionals are getting ready for a bumpy ride are out there. For instance, call options on the CBOE Volatility Index (VIX) became very active last week, a sign that the pros are hedging their portfolios.
Here, we’re using the volatility to look for stocks that we can either trade puts on or just get out of our portfolio to avoid any further pain. The following charts show signs that the bears are in charge of the tape: Apple Inc. (NASDAQ:AAPL), Gap Inc (NYSE:GPS) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).
Apple Inc. (AAPL)
Two things are in play for AAPL stock. First, last week’s product announcement, which, as usual, left the crowd a little disappointed. As is often the case, we are seeing some “sell on the news” activity from Apple shares after the lackluster event, but the charts are also playing to the bear’s favor.
AAPL stock broke out of its Bollinger Bands on Friday with a break of the lower band. The shares stayed outside of that band even with the rally yesterday. History tells us that the downside volatility argument for Apple stock just became a reality, as we should see an increase in volume selling from here.
In addition, AAPL shares are breaking through their 50- and 200-day moving averages within two days of each other. Technicians hate to see these trendlines give way and will increase their selling pressure on the stock as a result.
The shares are slightly oversold right now, but a target of $96 is likely before the technical traders start to come in as buyers.
Gap Inc (GPS)
Retailers have been the most popular target for the “buy the rumor, sell the news” with earnings this quarter. Gap is the latest victim of the trend. After beating earnings two weeks ago, GPS stock rallied more than 10% only to give that plus another 5% to the sellers since rolling over on Aug 22.
This week, GPS stock is trading back below its 50- and 200-day moving averages because of the selling, which is renewing the selling interest among technical traders.
Gap shares have not broken their Volatility bands, so the selloff has been fairly orderly, but momentum (as measured by the moving average convergence divergence) is turning decidedly negative again. This suggests that there is a migration of money moving out of GPS shares, along with other large retainers.
Gap shares have another 9% to go before they hit our chart’s support levels at $22.
Alphabet Inc (GOOG)
Another tech giant that is seeing a swing lower in its price is Alphabet. Most people might say GOOG shares have led the market higher, but they’d be surprised to see that they are only 1.3% higher for the year. Like the rest of the market, Alphabet stock has been stuck in a range — the problem is that its range extends all the way back to December 2015.
GOOG shares recently touched-up on the top of that range, as they crested at $780 per share, and now the technical traders are switching their trading postures to pocket gains and wait to buy again at lower prices.
Monday’s trading activity took Alphabet shares to their 50-day moving average, where they found support. We’re likely to see a retest of this level during Tuesday’s trading. A break below the 50-day moving average will increase selling pressure immediately. For those at home, the 50-day moving average is currently at $755.
We’re also monitoring the MACD for GOOG shares, which is creeping towards negative territory. This would be indicative of momentum being handed from the buyers to the sellers, resulting in more selling pressure over the next few weeks.
According to the chart, the next level of support should kick in around $740; however, any increase in market volatility will likely have Alphabet shares targeting a move to $700 again before they are considered a solid technical buy.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
