9:44 AM — Apple lost it’s major technical support at $320 a share which was the high resistance reached in October. $320 has been playing host for major support since late fall and Apple has held those grounds well. So what’s next? Well in a lot of occasions a loss of major support could mean a shake-out bottom. Sometimes you’ll see a stock lose support, go into free-fall, then bounce all the way back up and close above support. That is a big sign of strength that buyers are coming in to bid the stock up in the face of lost support. If we get that today, then it is starting to look good.
However, if Apple closes far below support or closes below support for multiple days in a row, it could be very bad. Closing below support for multiple days means the market is comfortable trading Apple at the current level. Remember, a stock only breaks above resistance or loses support if the market is comfortable with that price level. Now, in the event this becomes an “official” loss of support as indicated by multiple closes below support or a big close below support, the next line of support sits at $300.00. That support level isn’t nearly as strong as the $320 support, but it’s support nonetheless. If we remain below $320 for multiple days and the market continues its slide, Apple is going to test $300.
10:05 AM — Apple is almost over-sold. A lot of times, this could mean a bottom is near. But don’t be fooled, because on at least two occasions over the past 5-years, Apple going oversold was only the beginning of its correction. In January 2008, Apple remained deeply oversold for nearly one month before trading side-ways for two months and then heading higher. In the financial crisis, Apple went severely over-sold for over a month and traded sideways for nearly 5-months before bottoming out and heading higher. But there were a lot of other times where a very low RSI lead to a bottom. See below:
12:42 PM — It doesn’t look like we’ve gotten to the point where the market believes Apple is cheap enough to buy it up. Notice, that doesn’t matter to us. Just because the market currently doesn’t believe in the stock, doesn’t mean the market is right about Apple’s potential future pricing. It’s not a reflection of Apple in October, Apple in January or Apple in 2013.
So you want to be thinking about how to take advantage of the short-sidedness of the market. If you’re on the sidelines, this is as good as it gets. You want the market to be very very bearish on Apple because it gives you the extraordinarily rare opportunity to buy the stock cheap. Let them sell it. The fact of the matter is, in 2013, we’re going to be trading between $420 and $500.
1:33 PM – It looks like Apple is forming an inter-day bullish pennant. Let’s see where this goes. This pennant suggests a move up to $318-$319. We might close slightly down on the day. The only concern here is that the SPY is overbought on a short-term indicator which could suggest there will be some incoming pressure on the market.
2:41 PM – As we head into the last hour of trading, the Apple consolidation continues. The stock has been consolidating for nearly half of the day. It could be worse. At least it’s not in free-fall mode and actually forming a bullish formation — flag / pennant.
2:48 PM – And just as I posted that, we get a potential breakout to $318.50. Apple is doing better. If it can close down $1-$2, that would be a big. NIce bullish hammer. We would just need follow through. Bullish Hammer + big follow through is the most reliable bottoming signal there is. If we’re up tomorrow with some follow through, I’m calling this a firm bottom in the stock and will recommend to get long ahead of a major July rally.
Thanks for the update Andy. I plan to pick some more AAPL shares at $301 and $285 if the opportunity strikes. IMO those positions should be good for an easy 10-15% ROI in 30-60 days.
My big $330-335 position is hurting right now, but I have no doubt in seeing a good return in that position over the next 6 months.
It’s great to have insight and soothing words of an experienced and knowledge trader during in these stressful days. Regards, -E
The secret to getting rich is (1) don’t be greedy and (2) having a long-term horizon. If you do both of those things, you’ll make a lot of money. What I mean by #1 is this. I noticed that a lot of people are opting to buy 2012 options when they can simply buy 2013 options that might have a smaller return. But that return is probably a lot more likely.
Having a position at $335 is not bad as long as you have a very long-term horizon. You’ll be rewarded in the second half of the year.
Looks like $301.02 is support now.
Yeah. That sounds about right.
thank you I agree with eredmore. Thanks andy.
andy are earnings going to help anything on this scenario you think?
I am just wondering if good earning come out , what that means to the stock. if anything.
thank you and where you forsee the stock around earnings given the current price $312
Earnings might help. One more than one occasion, Fiscal Q3 earnings for Apple was the bottom for the stock.
Andy, I fully subscribe to your view that supply/demand drives the price of a stock, never mind the fundamentals or the products or whatever. When a margin or redemption call comes in, there is no option but to liquidate, and AAPL often bears the brunt of this, because it is so heavily owned.
But what do you make of it when on a day all the indexes are up, AAPL is down by ugly amounts like today? This happened a couple of times last week, too.
BTW, today’s low was a support of sorts – if you draw a line through the peaks beginning 2/17, and a parallel downward sloping line from the low of 1/19, it perfectly touches the low of today, and that forms a short down-trending channel. If you look at the daily chart from the low of 8/30/10, then this down trend channel looks like a flag pattern. Today’s low is also in the area of a 38.2% fibo retrace of the rally from 8/30, which is around $315.50. Although today’s low broke that, if it can crawl to that level today and close above it, that would be a bullish sign, IMHO.
So I believe that supply-demand drives the price of a stock, but only in the near and intermediate term. I do believe that things do balance out toward fundamentals but only in the very very long-term. For example, in 2007 you could have made a case for Apple $300 at some point in time. Between 2007 and 2011, Apple went from $200 down to $115, then back up to $200 then down to $150, then back to $190, then down to $78, then up to $350.
So all of that movement eventually resulted in Apple reaching its appropriate valuation. But the volatility in-between has ZERO to do with the fundamentals. Nothing zero.
To answer your question about today, it’s the result of mix of two things. First, there are funds that proscribe to strict technical guidelines i.e. we’re not allowed to own anything that falls below its 200-day moving average. Second, it’s down on further fund redemptions. Funds have to meet their redemptions requests and Apple is the most liquid name.
So i think today is a mix between redemptions and technical selling.
BTW, today’s price action also slightly broke the 50 week MA. If it can crawl back above it, that would be constructive, but if it breaks the 50 week MA, then the selling is not done yet.
roy, what number are you looking at today for the close then ? for bullish or bearish in the next weeks to come . ?
In mid April, I was sure AAPL was forming a head-and-shoulders pattern, and was going to dip down to the $290 area. But the earnings call reversed it and took the price up, but not enough to break out to a new high. I suspect those pressures may be still there, and a drop to $290 can’t be completely eliminated, I think.
So against that backdrop, I am keeping my eyes open to two scenarios. First, (more likely, I think), is that we go up from here. In the most bullish case, we would have an outside reversal where the price ends up in the green, but even a bounce to some number north of $315 or say, $317.50, would be very bullish short term. Then we will probably see a rally all the way back to the high $340s. Then we see what happens – if the Falafel store at the mall falls apart, then the Apple store at the other end of the mall catches cold, and AAPL pulls back again. If the prop up Greece, then perhaps AAPL can finally break out of this trading range, especially with the earnings, Lion, new Macbook models, etc. happening during July.
The second possibility is they continue to sell and the price ends at or below today’s low. In that case, I think there’s a capitulation sell off around the corner in the next few days that will test the $285-300 range.
Sorry if I rambled on a bit too much.
Are you sure it wasn’t a bearish pennant? Do we retest 310 today, later in the week, or closer to earnings? I have a strong feeling that we’ll see your strong buy range before earnings…
It’s a bullish pennant. A bearish pennant is off of a downward pole. This pole is vertical.
Bull Flag actually. It extended out into a downward channel flag. Early in the formation it looked like a pennant. But anyways. Bull flag, Bull pennant makes no difference. ONly the fact that it’s doing a little better than sitting at $310.
Andy, 2 things: will you be answering questions throughout the day or is there a better time to get a response on these comment sections? Also, you made the comment about “greedy” investments in 2012 options compared to 2013. I have both and was wondering in terms of the 2012 call options where you think the risk outweighs the benefits?
Market hours are by far the best time because after the market closes, I’m focused on writing articles. So these are the best hours. Now when I say opting for 2012, what I mean is this…
If you bet on 2012 calls today as the market stuggles, there’s a good chance you’ll do ok as Apple rallies in the second half of the year. But the risks that Apple doesn’t meet your target price is far higher in 2012 than in 2013. In 2013, you might get smaller gains, but the gains are more likely and probably far more secure.
So when I say, have a long-term horizon, I’m saying those who are thinking in terms of 2-year period instead of in terms of 6-month periods will do a lot better.
Andy, thanks for the quick response. What I meant to ask was where would you draw the line in terms of being too risky (even for an aggressive investor) with Jan 2012 options. Given this somewhat expected summer correction and overall flat year, what is your current range for January 2012 Apple stock price?
So Apple far outperforms in the second half of the year averaging about 50% gains in 6 out of the last 7 years. So I expect to see something like that in the second half. My target is $400 for January.
andy, can you specify on the bullish pennant. a good sign? short term?
I’m sorry I don’t quite get the question. There’s a potential bullish pennant setting up right now which could lead to a very short-term rally. This is a short-term issue. Like we’re talking in terms of looking at the next few hours.
. ok it s for th next hours of today. not for the following days..
.( still overall picture for the next weeks is looking bearish ? possible testing $300 ??
Yes very possible. It largely depends on the market. If we go into full rally mode, then I think that gets taken off of the table.
andy we need a follow through tomorrow…?
Andy, I don’t see an SPY area to post recently answered questions. I have been playing this month long correction but don’t want to overplay my hand. Any thoughts on when things should begin to level off?
dtfein — Go to the daily spy commentary page. It’s on the front page of the site. Here:
http://bullishcross.com/2011/06/the-daily-spy-trade-4/
Also if you look at the Nav bar, you’ll see something called “Spy model.” Familiarize yourself with that area of the site.
Doesn’t look like such strong follow through. I’m still thinking we retest 310 before earnings, if not this week…
Yeah it’s retesting the upper channel trend line. Like I said in the SPY commentary, the biggest risk right now is the overbought conditions on the SPY which could put downside pressure on everything including Apple. In terms of making a prediction on whether Apple is going to test the lows or go $300, I don’t have firm conviction. It really largely depends on a lot uncertain factors.
After the SPY comes off of overbought conditions, the bottoming set-up is perfect. The market is very near a short-term bottom. What happens if we get a multi-week 70-point S&P rally. That’s going to kill this idea of a test of $300. Lets take this one day at a time.
Do you think we could see a major rally without getting some sort of resolution to the Greece problem and an announcement of a deal on the debt limit?
The market abhors uncertainty, and there’s a lot of it revolving around two issues that could become extremely nasty if they go south. If the trading community starts really buying into either the idea that Greece will default or that there won’t be a deal on the debt ceiling in time to prevent either a default or massive suspension of Federal activity (including immediate layoffs of hundreds of thousands of Federal employees), a rally is the last thing we’ll see.
On the flip side, the day we see both of those major issues resolved, that could be the news that triggers the S&P rally…
So I interpret market behavior as an indication of how the collection of participants in the financial industry view the macro issue. We wouldn’t be getting all of these bottoming indicators if a bottom wasn’t near. There’s a difference between down 2000 points over 2 months with bottoming indicators and down 2000 points with no bottoming indicators. The former tends to happen when the market believes a resolution to whatever it is worrying about is near.
How should we read the close Andy? It didn’t really bounce off to the 1-2 range you were looking for….
The close was a little weak. But there’s a reason I sold my SPY position. Things are a little over-extended on one key indicator I look at.
So, I guess more of the same tomorrow. Waiting for a washout that does not seem to be happening at this time.
It was a lame finish for the day, but it could have been more negative (either testing the morning’s low of $310.50 or below even that). By that token, I think it could be construed as a positive end.
This kind of a finish keeps everybody guessing as to the next move, and all the alternatives open for the following day – meaning, there is a short term truce between the buyers and the sellers, as each camp takes a time-out to plan its next move.
I think there’s a better than even odds that AAPL moves up nicely tomorrow. I’m curious to see what Andy has to say.
Andy,
Your intraday commentary on AAPL price movements has been exceptional and is proving to be very valuable to me, especially as the negative AAPL chatter appears to be reaching a fevered pitch in the media and tech blogosphere.
Thanks again,
Darrin
Thanks Darrin!