Apple Inc. (AAPL) stumbled Monday, ending down 2.26% in heavy trading. While still a minor pullback in the grand scheme of things, the number of short-term bearish developments in Apple stock is mounting. It will be interesting to see if year-end holiday optimism pulls the tech titan out of its funk, or whether the bears will inflict more serious damage to AAPL.
A quick look at the technicals in Apple stock reveal two primary concerns.
First, the number of high-volume down days has been multiplying in the past two weeks. Often referred to as distribution, these high-volume down days suggest institutional selling, which has tendency of lingering for a spell. We’ve seen no less than four such distribution days in the past 10 trading sessions, marking a decisive change in character in AAPL compared to the last few months.
A second concerning short-term development is the failed bounce attempt. Since mid-October, Apple stock has been on a tear, with every dip and breakout aggressively bought.
Not so this time. Last week’s rally attempt was sold into resulting in the formation of a lower pivot high.
Throw these signs together, and the message becomes clear — the bullish posture of AAPL has been neutralized in the short run.
The bulls needn’t worry too much just yet, however, as the long-term view of the maker of all i-things remains incredibly bullish.
2 Option Plays for Apple Stock
If you think AAPL continues its descent, or at least fails to reach new highs anytime soon consider selling the Jan $120/$124.29 call spread for 55 cents. The reward is limited to the initial 55-cent credit and will be captured if Apple stock remains below $120 by January expiration. The risk is limited to the distance between strikes minus the net credit, or $3.74, and will be lost if AAPL rises above $124.29. To limit the potential loss, I suggest exiting if the stock rises above resistance at $117.25. Such a breakout would negate the bearish developments mentioned previously.
If you think the bears are about to have their party crashed by the dip-buying crowd, consider selling the Jan $103.57/$98.57 put spread for at least 55 cents. Consider it a bet that Apple stock remains above $103.57 by January expiration. If it does, you’ll capture the 55 cents, netting about a 12% return on investment. The max loss is limited to the distance between strikes minus the net credit, or $4.45, and will be lost if AAPL falls below $98.57.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.