Apple reached my price target; time to review the charts

Yesterday Apple Inc (AAPL) reached my price target; it’s now time to review the charts.

On January 8th (here: I discussed how the stock’s chart was setting it up for a move to $480 in the near term.  With yesterday’s sharp drop the stock not only hit but actually surpassed my profit target by some 30 points.

The mean-reversion move back into the longer-standing channel also overshot as the stock now trades below it.  As a reminder, stocks with steep up-trends that lead to vertical moves, such as what Apple Inc (AAPL) did in the first three quarters of 2012 have a high probability to mean-revert over time.  Furthermore, the more such a stock becomes cult, the more severe this ‘mean-reversion’ ends up being.  Given the almost religious following by many investors of Apple Inc (AAPL), it is not at all surprising to see the stock accelerate downward with the magnitude that it has over recent weeks.

Yesterday’s price gap lower has by most technical analysis sunk the stock into deeply oversold territory, at least in the near-term.  Apple Inc (AAPL) now sits some 24% below its 200 day simple moving average (red line on chart).  Yesterday’s big sell-off on much above average volume also pushed the stock into deeply oversold values as measured by momentum indicators such as the Stochastics.  The stock does have some horizontal support down near $425, which dates back to late 2011/early 2012, however traditional technical analysis is best left out here for the moment.

Given the still massive following which Apple Inc (AAPL) enjoys I am in no rush to do anything on the long-side (or the short side for that matter) of the stock for now.  The media hype around the stock and hence the emotions involved are simply too much for a high probability trade in either direction at the very moment.  In short, the stock needs to settle somewhat before anything but a scalp in this stock again reaches good risk/reward.

Trade for steady profits, not for entertainment.


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