Apple Inc (AAPL) is a highly publicized stock which has exhibited a smooth trend recently.  Is the most recent action in AAPL a steady retracement or a full-blown reversal?

Let’s look to the charts for some clues:

On the weekly structure, price has just completed a large run-up in price on declining volume (throughout 2008).  Price is currently in a retracement mode, and appears to be finding temporary support at the $170 range, which corresponds with the weekly 20 period EMA.

Should this area fail, the next ‘line of support’ could be the rising 50 EMA, which is near $150 per share.  Those desiring to be ‘long’ AAPL may find the $170 zone offers a potential support zone with a tight stop for entry.  There are many other factors to consider, as well.

In terms of the swing ’structure’ of the weekly chart, price made a new swing low at $120 in early 2008 and has now made a lower high at $190, and some would argue the stock is now in a confirmed downtrend, an argument which would be strengthened via the break of the 20 and 50 period EMA.  Until then, we still assume the structural uptrend.

What might the daily chart say to us?

I overlaid the Fibonacci retracement grid on the chart, as well as provided the lower panel “3/10″ MACD oscillator.

On this chart, $165 appears to be very strong support.  This area corresponds with the rising 200 period moving average, and the 38% Fibonacci retracement, which is the first line of potential support during a normal retracement.

One concerning factor is the decline in price as it has made both lower lows and lower highs in price.  Another factor to consider is the negative momentum divergence which preceded the price ‘rollover,’ or smooth transition from buyers (demand) to sellers (supply).  I actually drew the arc to highlight this transition.

Key points to take away:

If you are wanting to get long Apple, there could be strong potential support around the $165 zone, should price retest this level.  A strong penetration of this level would call the bullish arguments (from a chart standpoint) into question, and traders would need to hedge or cover losses at that point, as momentum could carry the stock even lower.

Risk could be higher now than it was previously, as well.

This analysis is for short-term trading tactics only, and make no reference or assumption to longer term investments or company fundamentals.