Apple falls 20% as technical outlook turns bearish

Apple’s stock reached an all-time high of $701 a share on 21 September. Since then however, the world’s largest company has fallen more than 20% and the technical outlook has turned distinctly bearish.

From its all-time high of $701.86 on 21 September, to yesterday’s close of $558.00, Apple has fallen more than 20%. Two weeks ago I noted that during its decline Apple had begun to form a Falling Wedge pattern that had the potential to send the stock back upwards if it could breakout of the pattern to the upside on strong volume.

However, as the chart below shows, the stock failed to bounce at the lower support line, or the 200-day moving average invalidating the pattern. Yesterday the stock sold-off sharply again, falling $15.84 and failing to find support at the 38.1% Fibonacci retracement (top red circle).

A 12 month chart of Apple (Click on the chart for a larger version)

A 12 month chart of Apple (Click on the chart for a larger version)

Charts courtesy of stockcharts.com

The outlook for Apple from a technical perspective is now distinctly negative.

The 200-day moving average, which acted as support back in late November 2011 (small red circle), was breached on the second attempt. The 38.1% Fibonacci level (blue line), which represents a 38.2% retracement of the entire move from the 25 November 2011 low to the 21 September 2012 high, also failed to hold.

In the 25 October article I said that “the CMF indicator should begin to turn up in advance of a breakout, and a move into positive territory would help confirm a new bullish trend”. As the chart shows however, the CMF indicator (bottom red circle), which measures buying and selling pressure, is still deep in negative territory.

Interestingly the trend following system used by my colleague Richard Williams, issued a sell signal for Apple on 2 October when the stock was only down 7.2% from its all-time high.

The next area of potential support for Apple comes in at around the 50% Fibonacci retracement level at $530 (yellow box). Apple also found support back in May at $517. If this level fails to hold Apple is likely to fall considerably lower.

Fall from grace

Apple made a significant bottom in January 2009 at $77.51. It then proceeded to rise 805%, and in doing so the world’s largest company became a must own stock for many investors. The company also garnered the kind of brand loyalty most companies can only dream of. However a series of recent product disappointments, not least the woeful maps found on the iPhone 5, have caused both investors and some Apple’s customers to have a change of heart.

The bottom line

Those looking to profit from Apple’s fall from grace could go short the stock via a spread bet.

As a trader your job is not to eliminate losses, it is to minimise then, which is why it’s essential to always have an exit strategy. In this case I would suggest placing an initial stop loss at around $602 and moving it down as the trade plays out.

  1. Excellent article.

    Can you point your readers to the link for the article by your colleague, Richard Williams, in which on October 2, 2012, the sell signal was issued. Thanks much.

  2. Hi Annmak12,

    Thanks for the feedback.

    It seems you have misunderstood me. Richard is primarily a commodities trader, but the trend following system he has written about (which is easy to followed) can also be applied to stocks such as Apple and his system gave an early sell signal on the stock.

    I recommend his article “Diary of a Trend Following Trader: The rules of the game” which explains his trading system.

    Thanks

    SW.

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