On October 10th, I noted on a blog (http://www.valuetrend.ca/?p=1488) that I felt Apple might fall to under $600/share. At that time, the stock had fallen from its high of around $700, and looked to be retracing to its 2-year trendline. This weeks sector view presents the big trendline that I drew on the chart at that time. Interestingly, since that blog, AAPL has twice pulled right back to the trendline in a perfect test!
The question now is – does this present a buying opportunity, or should we fear a break of the trendline? From a technical analysts point of view, AAPL is showing significant support at $520—see the lowest horizontal support line on the chart. The $520 level lies in conjunction with the big trendline drawn from early 2010. There is overhead technical resistance at just under $600 for the stock, and again at $620. Perhaps a short termed trading opportunity exists for traders willing to buy near $520 support, and sell as it approaches $600. A downside break through $520 would be very bearish for AAPL. I’d target a potential drop into the low $400’s if that happens.
My hesitation in buying the stock for a longer play revolves around the weakening moving averages, and the increased competition within the smartphone and tablet space that AAPL currently dominates. Not being a fundamentalist, I will place more emphasis on the moving averages at this time. Recent actions on these indicators tell me that the near termed trend may be weakening. Witness the falling 50 day MA, and the “death cross” where it broke below its 200 day MA a week or so ago (daily chart below).
Also on the daily chart below, note the momentum indicators in the bottom panes. RSI, which is a slower moving momentum indicator, is not signalling an oversold rally condition. RSI can provide meaningful mid-termed overbought or oversold signals for those who like trading over months rather than days or weeks. Stochastics looks to be on the verge of a buy signal. Stochastic “hook ups” can be accurate short termed momentum indicators, meaning that they can signal a near termed rally, but not necessarily something that would appeal to longer termed traders.
Overall, I am reasonably confident that a near termed rally could be seen for AAPL. I’ll need proof that the stock can maintain its trendline, and break through $600 before I get too bullish on the stock for the longer term. Meanwhile, keep a sharp eye on that $520 support level for a breach. That’s a game-changer, in my view.