Chart Set-Ups in Apple (AAPL)

Apple Inc. (NASDAQ: AAPL) has come into some trouble as far as its stock charts are concerned, which is why it was one of the lead-in stories of ten stocks on this weekend’s unusual suspects we compose for traders to watch each week.  The most admired tech company and consumer electronics cult company was assigned a sell signal on Friday from INO’s Adam Hewison, one of our affiliates, with a full audio-video presentation showing an exit and the reason.  This sounded a lot more like an “exit long positions” more than a short sell alert, because Hewison noted a wait on the sidelines on the stock.  But it seems that many traders have likely taken the call as a sell signal as an exit and a short-sell both.  There is much more to consider in Apple besides one technician’s call and we have identified other areas of concern as well.

Apple closed under its 50-day moving average of $195.42 on Friday.  Today the 50-day moving average is listed as $195.58 in the chart here from StockCharts.com, so the overhang on any recovery would technically be a tad higher than just on Friday.  This was actually the first time since March that this came to pass.  That is after a double-top came into play north of $200.00 in recent trading sessions.  We would have expected a triple-top might be needed for a cleaner ‘technical failure’ but in charting you have to take what you get. But if shares close down at all and/or anywhere close to the current price, then the chart on Apple’s trend is going to be as confirmed as ever that its set trend is no longer just an upward and onward path.

Now we have seen shares trade as low as just under $189.00 this morning before shares recovered to above $191.00.  That is still down 1% on the day after a $193.32 close on Friday.  If you look at the chart, Apple has now formally broken that long-term up-trend that had been in place for months and months.  That won’t damn the stock to head lower alone, but it creates what may be a technical no-man’s land on the charts.

Apple is also now seeing stock options getting more play as investors are using the stock options as a “cheap way to get exposure” to Apple’s price moves.  On Friday, the DEC-2009 call options traded close to the open interest levels in many contracts.  We saw more than 115,000 of the closest DEC-CALL contracts trade and almost 100,000 DEC-PUTS traded on Friday as well.  This morning after just over an hour of trading we have already seen over 30,000 contracts of the closest DEC-CALL strikes and over 23,000 in the nearest DEC-PUT strike prices.

We are not going to try to key in on the short minute charts or come up with any intra-day pivot points for each dollar move in the stock.  That $196.00-ish area does appear to be the most recent key level to watch on a static basis and we’d pay close attention the 50-day moving average each day this week.  On the downside, the $186+ handle acted as extreme support and resistance pivots back in October and November.  As far as what levels might come into play after that, if it is breached, it seems $178 to $180 is the area under. As far as the 200-day moving average for support if this gets really nasty, that is hard to imagine right now as the level is currently $151.95.

You never know if analyst calls will or will not be able to help correct a technical move.  But the pullback and risk here seems enough that we would not be shocked at all to hear this week about analysts pounding the table with “reiterated” buy and outperform ratings.  It seems that the average price target is now over $230, and there is even a high call of $280 as a price target.  Nothing goes up forever and Apple can’t be an exception to the rule permanently, but we have seen how Apple generally recovers from its corrections.

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Jon C. Ogg
December 7, 2009