Gravity struck Apple Inc. (AAPL) following its fiscal second-quarter earnings report, toppling the beloved tech titan. Short of one or two dismal bounce attempts, Apple stock has been in free-fall ever since.
Now the bruised and battered fruit lies on what many chartwatchers hope to be the solid, impenetrable ground.
Indeed, Apple stock is resting on an oh-so important support level. The $92 zone has halted two recent downtrends — the China crash last August, and the January swoon earlier this year. Shareholders are hoping this bastion of strength will save AAPL once more.
Otherwise, things are about to turn nasty (as if they weren’t already.)
The weekly chart illustrates the importance of the price threshold nicely. A breach of the floor would complete a massive topping pattern and take out the 200-week moving average in the process. The next major support level lies beneath at $82, making that the logical target should Apple bulls fail to defend their stronghold here.
Volume patterns certainly aren’t helping Apple stock bulls either. Distribution days litter the landscape, suggesting the selling sortie has some serious backers.
To be fair, a break of $92 support doesn’t guarantee imminent doom — there is such a thing as a failed pattern. But it certainly provides a clean price level to trade around for those looking to enter the fruity fray.
Play the AAPL Breakdown with Puts
With earnings fading in the distance, AAPL options have become dirt cheap. No need for getting fancy with spreads on this breakdown. Go for the jugular with a straight up put buy.
Buy the July $92.50 puts if Apple stock breaks the $92 support zone. You can probably snatch them up around $4 at that point. The max loss is limited to the initial $4 and will be forfeited if the stock sits above $92.50 at expiration.
The max reward is unlimited allowing unfettered participation if the selling in AAPL accelerates in the weeks to come following the breakdown.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.