The Tenuous Technical Position of Apple AAPL Right Now

Nov 23, 2010: 12:21 PM CST

In scanning charts of leading stocks during today’s sharp decline, I found an interesting development setting up right now in shares of Apple (AAPL).

Let’s take a look at the Daily chart structure of Apple, and what two divergent price pathways may lie ahead in the future.

We see a powerful rally – similar to that of the broader stock market – off the September period that brings us to the current structure.

The main idea – from a simple perspective – is the key confluence support at $300 from three sources:

The Horizontal Price Line (prior lows), the 50 day EMA, and the “Round Number” $300.

Ok, so from an investment and trading standpoint, Apple buyers need to hold $300 as support, else the potential develops for a deeper swing lower.

And of course if $300 holds as bullish support, particularly if this current price swing continues and takes out the $320 high, then we could be looking at a stable retracement and beginning of a new bull leg higher.

Let’s look at those a bit more closely.

1.  The Bearish “Head and Shoulders” Case

Let’s start with the ‘pathway’ that $300 breaks as support and a down-leg develops.

The evidence to support this is the potential formation of a Head and Shoulders patter at the highs.  If so, then the Head – $320 – is $20 above the neckline at $300 which gives a downside short-term price projection target of $280 ($20 minus the neckline).

The $280 area is also near the October low of $278 and is also the 50% Fibonacci Retracement of the $235 low to the $320 high.

Ok – so on any downside break of $300, watch for a price sell-off to test confluence support at the $280 area.

The “Head” portion – or recent high – formed on a negative momentum divergence as drawn, and the recent swing up is forming on a negative volume divergence also as shown – that’s classic “Head and Shoulders” behavior.

2.  The Bullish “Trend Continuation” Case

And the alternate scenario – meaning we assume that shares DO NOT break under $300 – is just a simple “Trend Continuity” bet which has played out nicely to Apple investors.

This scenario triggers if price breaks sharply above the $320 recent high, ideally on higher volume and momentum.

If so, then additional upside targets remain without any clear targets of resistance – as in, there would be no resistance (Apple is making new lifetime highs).

Look to buy shares on pullbacks to the 20 or 50 EMAs, as I’ve shown with green arrows.  Recently, shares have held support of these moving averages.

However, like the S&P 500, as price broke the rising 20 day EMA, the immediate target was the rising 50 EMA, as I explained in a recent post on the S&P 500 with a similar situation.

Summing it all up – bulls should be watching $320 for a breakout and confirmation of their scenario, while bears should be watching $300 and a confirmation of their scenario.

At $310, it’s probably best to wait until one of these occur before getting really aggressive either way with Apple shares between these two price boundaries.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

6 Comments

6 Responses to “The Tenuous Technical Position of Apple AAPL Right Now”

  1. JeffreyLin Says:

    great lesson on $AAPL, yet so simple. the way it should be

  2. tomterrific Says:

    Corey, 3,10,0 MACD, Not 3,10,16 MACD? Where did that come from?

  3. Corey Rosenbloom, CMT Says:

    True! I've become much more reliant on “IF/THEN” analysis and levels to watch, and try to eliminate bull/bear bias as much as possible.

  4. Corey Rosenbloom, CMT Says:

    Tom,

    I don't do a whole lot of work on the 16 period smoothed average, as I'm most interested in two things with the oscillator:

    Comparing price swings to find momentum bursts, suggesting price continuation.

    Comparing swings to find momentum divergences, suggesting price reversals.

    Others use the 16 period for triggers or trade signals, but I'm looking at the oscillator as confirmation/non-confirmation, not for signals – signals come from price.

    Good observation there!

  5. jesterx Says:

    that is such a cool chart. Hunted you down through http://www.forecastfortomorrow.com those guys are very accurate….just like you.

  6. Brian Says:

    Shorting Apple is nearly impossible in today's market. I tried to short CMG (another HFT favorite) and didn't fare out too well. Best bet is to go long. Haha.