Early Gains in Apple on Back of TV Rumor Evaporate

The persistent bearish price action in shares of Apple AAPL is continuing on Wednesday. The stock traded higher in the pre-market based on reports that the company is in the early stages of testing for an Apple TV. According to the Wall Street Journal, Sharp and Hon Hai, known as Foxconn, are working with Apple to test designs for a large-screen, high resolution television. The report cited unnamed officials wired into the company's supply chain. The report further states that Apple has been experimenting with television prototypes "for a number of years." It isn't a formal project yet. It is still in the early stage of testing," one of the sources told the Journal. Rumors about an Apple TV have been in the marketplace for a while now, although they have not risen above the level of speculation. The company, which already makes a set-top box which connects online media to traditional television sets, has done little to dissuade the rumors. In a recent interview with NBC, Apple CEO Tim Cook intimated that a TV may be on its way. "When I go into my living room and turn on the TV, I feel like I have gone backwards in time by 20 to 30 years," Cook said. "It's an area of intense interest. I can't say more than that." The stock rose in Wednesday's pre-market session as traders speculated that the report could be enough to trigger a rally in the stock. Shares opened at $547.77, but those gains have since evaporated. At last check, AAPL was trading down 0.22 percent to $540.00. Wednesday's bearish price action in the world's largest company comes despite a rally in the broader market, with the Dow rising 50 points and the S&P climbing better than 0.50 percent. Due to Apple's underperformance, however, the Nasdaq was only up 0.23 percent heading into the final hour of trade. Apple has been weighing on the entire Nasdaq Composite for months now. The stock is down more than 19 percent in three months time after hitting an all-time high above $700.00 in September. The losses have captivated Wall Street which has spent the last few years cheering the stock's meteoric rise. On a fundamental basis, the sell-off in the name does not seem to be entirely justified. The stock continues to trade at a very cheap valuation -- its forward P/E is under 10 and its PEG ratio is just 0.53. From a pure supply/demand perspective, however, Apple could continue to plunge in the near-term. The stock is so heavily owned by fast money traders and hedge funds that the selling momentum appears to be feeding on itself. When everyone is already long a stock, it implies that there are few marginal buyers left. Subsequently, when large investors begin to sell, it can trigger large declines like we are seeing in Apple. Going forward, a key level in Apple will be in vicinity of $525.00 - $530.00. This is where the stock found support back in May during another sharp pull-back. This is also the price band where Apple bounced from in mid-November. Given the continued bearish price action in the name, it is likely that the stock could see these levels on Thursday or Friday.