A worm has settled into Apple (AAPL) stock and it’s making the technology kingpin do all sorts of uncharacteristic things — like go down in December.
How dare it disappoint shareholders with such bad behavior!
The technical deterioration is really starting to add up here, and if AAPL stock isn’t careful, it could fall far from the profit tree.
Let’s take a peek at its ailing chart and see if there’s a trade to be had.
AAPL Stock’s Issues
First on the uh-oh list is Apple’s utter lack of momentum. And this despite the relative strength from the Nasdaq this year. See, Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Alphabet (GOOGL, GOOG) have been all too willing to pick up Apple stock’s slack.
After yesterday’s drubbing, AAPL has now fallen more than 17% from its April highs.
What’s perhaps more disconcerting is the fact that the slow-and-steady descent in the Apple stock price has lasted long enough to turn the 200-day moving average lower. To reverse a rising 200-day moving average is no small feat. It takes a prolonged descent to turn the freighter, thus signifying a prolonged inability of the stock to get off the mat.
While the long-term trend reversal may not spell imminent doom like it did back in late 2012 and 2013 (AAPL dropped some 45%), it adds a significant amount of overhead resistance atop AAPL stock which will make it difficult for shares of the world’s largest company to stage a quick turnaround.
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How far AAPL stock drops before buyers materialize in force remains a mystery, but the $100 level is as good a price target as any.
And thanks to the inherent leverage offered by option contracts, we can structure a trade to double our money should Apple stock reach the century mark in the months ahead.
Buy the Feb $110/$100 bear put spread for $3.75. The initial debit of $3.75 represents the max risk and will be forfeited if Apple stock price sits above $110 at expiration.
If you want to minimize your loss, you can always exit if AAPL rises back above the 50-day moving average near $116.
The reward is limited to the distance between strikes minus the net debit, or $6.25, and will be captured if AAPL stock can fall below $100 by expiration.
By using February options, we’re giving Apple stock two months to make the required journey.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
