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Where Is Support In Apple?

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Where Is Support In Apple?

Where is support for Apple Inc. (NASDAQ: AAPL)? That's a difficult question to answer for a few different reasons.

Based on the daily charts, Apple's major support comes in at its August 24, 2015, Flash Crash-low of $92. However, that low was an anomaly that was precipitated by an extraordinary set of circumstances. With circuit breakers being triggered worldwide, there was virtually no liquidity on the open that day. Low liquidity coupled with a crescendo of sell-stops created an artificially low price that Apple has not come close to matching.

If it's not $92, could it be at or near Wednesday's low of $100.22? Once again, this price was the result of a chaotic open in the market induced by factors that have very little to do with the true fundamentals of the company.

The issue has also been under selling pressure due to the weaknesses in the supply chain for iPhones. If true, it will surely be reflected in the company's Q4 report due out following the close on January 26.

Related Link: Apple's iPhone Production May Be Cut By 30%

Bottom-Picking

Therefore, it could well be all the bottom-pickers in the issue since early November capitulated and pushed the issue to an artificially low level. However, Wednesday's price action doesn't compare to the $14 drubbing it took off the open on August 24. Instead, it was merely a $3 drop from Tuesday's closing price to the current intra-day low ($100.22 at time of writing).

Other technicians will gladly argue the low has to be in. After all, the current low coincides with the nice psychological support level of $100. The reason for that being institutions and retail investors alike will place orders at nice round numbers for the sake of simplicity.

For now, that thesis has some validity. However, an investor would be remiss in thinking it could not retest that level or even breach $100 a few times before staging a significant rebound.

For the sake of argument, if $92 or $100.22 don't end up being a long-term low, how should investors approach the issue? For now, the momentum is to the downside and the next true potential catalyst for a sustained rally may not come until its earnings report later this month.

Sellers

Most likely, any rallies in the issue before the report (whether from analysts upgrades or being carried by the broad market) will be greeted with willing sellers. Those sellers will either be stuck long from trying to pick a bottom and hoping for a scratch, or shorter-term traders that could care less about the long-term direction of the issue.

The other and more significant sellers will be the long-term holders of the issues. Keep in mind, Apple has had an incredible run over the last seven years. From its January 2009 low of $11.17 to its all-time high in April 2015 of $134.54, many investors are sitting on huge profits. As a result, there are many long-term investors in at much lower prices. Many of these investors have areas on the downside to exit and will not hesitate to liquidate at $92, $82, $72, etc.

Related Link: EXCLUSIVE: Detwiler Fenton Analyst Says Apple Situation Is Deteriorating

Go Long?

There are four potential ways to look at this:

1. If going all in at $100, have a predetermined exit that would allow a moderate loss and allow a retry at a lower level.

2. Focus on a major resistance level if the issue clears, entering the issue on strength as opposed to weakness. If resistance level is not breached, the entry point can be lowered.

3. Determine the total amount to invest and do it in tranches. For example, if investing $1,000, put in $200 and be prepared to buy at higher or lower prices. A trader's mindset will be much different if it continues lower as opposed to going all in at one price.

4. Finally, utilizing the options market will allow a trader to set a predetermined loss at the total purchase of the options. Timing is critical in options.

Posted-In: Premarket outlookTechnicals Psychology Intraday Update Movers Tech Trading Ideas General Best of Benzinga

 

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