On January 25th I discussed here ( http://investorplace.com/2013/01/apple-hits-our-target-whats-next/ ) that post the gap-down sell-off earnings reaction from January 24th in Apple Inc. (AAPL) , risk/reward in the short side was worsening. The emotion-filled stock has since bounced, then continued to slide lower where it currently sits roughly 3.50% below my note in late January.
So, what has changed since my last musing? From a pure price action point of view the stock is flashing a very steep slope since the September 2012 top. In short, risk/reward on the long side of the stock is slowly getting better. Let me be clear, I am not calling for a bottom here (but given the stock has now consistently slipped lower over the past five and a half months, a tradeable bounce with defined risk may set up sooner rather than later).
In full disclosure, ’cause that’s how I roll, since my late January take on Apple Inc. (AAPL) I have made some trades of the quicker variety in Apple Inc. (AAPL) but refrained from any more meaningful risk-taking.
Allow me to make my case with the help of a couple of charts. Given the steep sell-off in Apple Inc. (AAPL) we now have to zoom-out pretty far in order to find support levels and other reference points. So I again start off with my trusty longer-term chart, which is oh so simple but tells you everything there is to know for the bigger picture of the stock.
The two trends I would like to point out are clearly marked on the chart. Note that during the up-trend, the steeper the slope got the more unstable the price action became. It will most likely turn out to be the same way in the current down-trending channel. The steeper the slope, the closer we get to an eventual low, or at least a level to lean against on the long side for a swing trade.
Closer-up on a daily chart of Apple Inc. (AAPL) is where I want to have my focus over coming days and weeks.
On the upside there are several reference levels I have on the radar, the breach of each of which is telling for the stock;
1. Simple lateral support near $435, which the stock broke below last Friday March 1st.
2. The downtrend line (blue) dating back to the September 2012 highs
3. The 50 day simple moving average (orange slope), which has acted as good resistance on any bounce since October
Each of these levels has the power to push the stock to new intermediate term lows. Why?
Apple Inc. (AAPL) was and continues to be a very crowded stock. Those long the stock will look to sell into rallies, thus likely limiting the upside in the stock over a 3 – 6 month time-frame.
So, at what point would I try the stock for a swing trade to the long-side?
In short, I am keeping my eyes out for major reversal/ seller-exhaustion candles, positive divergence of momentum oscillators versus price on this nearer-term chart that would scare the bears enough to get out of the way and allow the stock to rise 10% – 20% without too much headwind. If and when the signal arrives you will be sure to hear from me.