Is the Golden Delicious Rotting? A Technical Guide to Trading Apple

Before Facebook's FB IPO, the big name in the stock market was Apple AAPL. However, with the fiasco of an IPO of Facebook and European risks rising, has Apple, the starlet of the market, lost its luster and is the meteoric rise in the price done? Well, let's consult the charts.

Looking at the 3-year logarithmic chart, we can see that Apple recently held the top channel and has cine moved higher. Resistance here appears to be at the 50-day moving average which sits at $589.71. Support is all the way down at the 100-day moving average, which also is right on the trend line, and is just above $530. A failure to recoup the 50-day moving average on the next test would confirm a head and shoulders top and would be medium-term bearish of Apple.

Below, you can see the 6-month chart, and a few more important levels become apparent on this chart. Since the highs back in April, Apple has been stuck in a downward channel. The top of this channel is now around $570 and the bottom is around $510. Apple failed to breach out of this range yesterday and almost made an outside reversal (it did not close on the extreme lows but was very close). It looks as though in the short term that Apple is set to retest the 100-day moving average which is at $533.04 and a break through this would target the bottom of the trend at $510. There is marginal support at $500 but that is also a round-number, psychological level that will probably be defended. A break lower from there signals real trouble, as there is really no support until the 200-day moving average, which is all the way down at $461.

Other technical indicators aren't as bearish currently. The RSI signals that Apple is not as oversold as it was a few days ago, but still does not remain over-bought by any stretch. Also, the MACD is signaling that a bottom may be forming, but a bullish cross has yet to occur. Fundamentally, remember that a $600 price on Apple implies that sales growth over the next five years needs to be something on the order of 45% per year and that, by instituting a dividend, some mutual funds may be forced to sell, as was the case with Microsoft MSFT when it initiated a dividend.

It seems prudent to short Apple on a spike back to $560 with a stop loss at $570 and a target of the 100-day moving average at $533.04. The time frame for this week is about a week.