The AAPL Retracement
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.
I’m bearish on Apple and have said as much. I’m looking for $160 – $165 as an area to cover some of my short position. I recently updated my outlook on AAPL in Update3
I would classify myself in the relatively bearish camp as well, but there does appear to be strong chart support which could provide a potentially significant short-term bounce in the stock.
If Apple fails at these levels mentioned (moving averages on different time frames and the 38% retracement), then my assertion is that all bets are off for continued upside in this stock – violating those levels would be the turning point where it would be extremely difficult to argue a bullish case for the stock (based on the charts).
Thank you for your comment and link!
I’m very bearish Apple.
Today’s price on the weekly chart goes back to October 15, 2007 which is the middle of a ‘broadening top pattern’; it’s as Street Authority says, when you see the broadening top, the market (or stock) will eventually drop.
On the daily chart one can see the May 19th end of the TAF, TSLF, and PDCF rally. And then the June 5th and June 9th end to the recent yen carry trade rally that began March 18, 2008. Apple has been a long term yen carry trade favored investment, now with inflation and recession announced in the minutes of the May 19, 2008 Bank of Japan meeting, those who borrowed at 0.5% interest are selling their stock investments and repaying their loans.
Except for energy related, most stocks traded down today on traded down on the Goldman Sachs & Co strategists’ report to U.S. stock investors to “underweight” the nation’s financial and consumer discretionary sectors, admitting that it was mistaken when it upgraded both sectors just seven weeks earlier!
I recommend a sell; or even better yet an investment in gold, as I share in the linked article.