AAPL spent a large part of the first half of 2011 under-performing the market with a relatively low valuation (for example, see “A Rare and Important Test for Apple’s Recently Underperforming Stock“). AAPL’s relative under-performance has returned, and its stubborn inability to regain lost momentum is getting more than a bit disconcerting. Apple (AAPL) is looking vulnerable again.
The stock market did not react well to Apple’s (AAPL) last earnings report despite arguably strong numbers. The stock dropped from an all-time closing high of $422 to $399 on October 19 for a one-day 5.5% loss. For the next three weeks, AAPL held steady above its 50-day moving average (DMA), vacillating around the psychologically important $400 level. The NASDAQ also churned up and down in a tight range during that time.
On Thursday, November 10, while the NASDAQ traded over a wide intraday range and closed near flat, AAPL finally broke down below its 50DMA and lost 2.5%. On Friday, the relative under-performance continued with the NASDAQ gaining a healthy 2% while AAPL struggled to close flat on the day. With the general market extremely overbought, AAPL becomes particularly vulnerable to a swift retest of its 200DMA once the inevitable market sell-off begins.
The daily chart for the year includes arrows to point to critical junctures. The green arrows show where AAPL successfully retested its 200DMA. The first test was “sloppy” and AAPL’s first visit to ths critical long-term trendline since the flash crash of 2010. The first red arrow points to the breakdown from the last earnings. The second red arrow points to the current breakdown from the 50DMA.
Source: FreeStockCharts.com
I will be watching the next retest of the 200DMA very closely. Three tests in just 5 or 6 months represents the behavior of a stock struggling to stay aloft. Eventually, this support will give way to a more sustained sell-off.
I am still holding my January call spread (which has gone absolutely nowhere in the several months I have owned it), but I finally purchased November puts on Friday. These puts will make money if AAPL experiences a swift move to retest to the 200DMA; this is the most likely scenario in my read of the chart. I will re-examine the technical landscape after next week’s action.
Be careful out there!
Full disclosure: long AAPL call spread, long AAPL puts