AAPL Amazing Intraday Gap and Recovery

There’s so much to be said about Apple’s (AAPL) intraday performance today.  From the 10% gap down to a rally to close the day off just over 2%, Apple traders were in for an amazing ride.  Let’s look at the intraday and daily chart to see where this leaves us.

AAPL 5-min:

The bulls truly turned a bad situation around in a hurry.  I watched Apple fall after earnings were released yesterday and I figured we’d have a bad gap opening and I suspected there would be at least a 50% retracement of that gap.  I didn’t expect an almost full gap recovery situation!  I tip my hat to the bulls for finding deep value in the price plunge.

Apple reported record June earnings and Q2 profit over 30% greater than Q1, yet most of this was already priced into the stock, and traders punished Apple for lowered guidance in earnings ahead.  These kinds of situations are enough to make your head spin and give you extreme frustration as a newer trader.

“But they had record profits!  Why did their stock go down so much?!?”

To make your head spin even further, Wachovia Bank (WB) reported over $8 billion in losses in Q2, that it will be slashing its dividend, and that it will be laying off over 10,000 workers and it would be almost lunacy to think their stock ended the day well.  But it did.  Wachovia ended the day 27% higher – but these points are for another discussion.

With Apple, usually the best strategy to employ after a gap is to attempt at least initally to trade against the gap, playing for a partial or full fill.  I don’t like to fade equity gaps greater than 2%, but you just never know what will happen so it’s often best to employ a consistent strategy, even if you do so with a smaller than normal position.

Anyway, as the day developed, price initially found resistance via the 20 period EMA which was then broken (and turned into support) before finding resistance at the 50 period EMA, and once it was broken to the upside as well, the ‘skies cleared’ and opportunities opened up vastly to the upside with renewed confidence.  I listed the “Highest Probability” trade as being the retest of the confluence of support coming from the 20 and 50 period EMA converging – it was a low risk, high reward situation that paid dividends for aggressive traders.

So where does this leave us on the daily chart?

AAPL Daily:

The downtrend is still officially confirmed, and price is ‘officially’ beneath all three key moving averages, including the 200 period (known as the “line in the sand”) but I’m sure Apple bulls take solace in today’s action.

67 million shares transacted today – while not a record, the activity was definitely impressive.

Let’s continue to watch this stock and how its movements may affect the broader stock market.