Technicals: Is Apple A Buy Or Should You Stay Away?
Tuesday saw the biggest single day decline for Apple (NASDAQ: AAPL) since September. You can read the multitudes of commentary about the company’s earnings announcement Monday, but most agree that there wasn’t anything catastrophic about the report.
Regardless, the stock plunged eight percent by the end of the trading day Tuesday. Investors and traders are left with the all-important question: Does the eight percent drop represent a stock on sale or is it a sign of more pain to come?
First, let’s look at volume—a reliable measure of investor conviction. The stock changed hands 38 million times and although much of that was likely automated trading, it’s three times higher than average and represents the largest number since September.
Next, the moving averages. Prior to the earnings announcement, the stock was sitting on its 50-day moving average after a week of downside action in all three major U.S. indices. Tuesday’s move sent it $40 below its 50-day moving average. The next level is its 200-day moving average—still much lower at $479.81 or $27 below current levels.
But there are two other problems that stand out at first glance. First, at its current level of $506.50, the stock doesn’t have any strong areas of support to the downside until it reaches its 200-day. It easily broke through what should have been a strong level of support around the $512 area.
Second, since reaching a $570.09 in late December, the stock has been in a downtrend. From that date until its earnings release Monday, the stock had lost four percent of value. Investors were clearly selling, as the China Mobile news had priced itself into the stock and investors were taking profits. This was a stock under pressure prior to the earnings announcement.
How about the longer-term chart? Looking back to 2012, the stock printed its now-famous $700 high but quickly retreated to $390. At its current level of $506, it’s in the middle of the range. If the stock can’t hold its 200-day, there are plenty of chart support levels on the way down, but there’s nothing in the charts that would currently indicate a retreat to that level.
Carl Icahn believes that the stock is a buy and he invested $500 million based on that theory Tuesday. Tread his actions carefully. Watch the chart. How the stock reacts in the next couple of days will give you a better idea of investor sentiment. Until you have that information, jumping in would be ill advised.
Disclosure: At the time of this writing, Tim Parker was long Apple.
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