A Dead Cross For Apple

06/22/06 08:32:07 AM

by Arthur Hill

While the NASDAQ popped over the last five days, Apple remained stuck in a trading range near support and shows no signs of strength.

Security: AAPL
Position: Sell

On the daily chart (Figure 1), Apple (AAPL) shows a sharp decline in May before it began to firm in early June. This firming occurred near the prior low and the stock has established a support zone in the upper 50s.

Despite this firmness and the support zone, a "dead cross" formed with the 50-day moving average and 200-day moving average. A "dead cross" occurs when the 50-day moving average moves below the 200-day moving average. Prior to this, the 50-day had been above the 200-day average since May 2003. That's over three years and represents a great bull run. The dead cross is only one day old, but AAPL needs to pop soon to reverse this bearish signal.

FIGURE 1: AAPL, DAILY. Apple shows a sharp decline in May before it began to firm in early June.

Graphic provided by: MetaStock.

The stock has traded between 56.69 and 60 over the last eight days and formed a tight consolidation (magenta trendlines). A harami formed with the long white candlestick and smaller black candlestick, but there was no upside follow-through (gray arrow). The consolidation holds the first key to the next move. A break above 60 would be short-term bullish and target a bounce back to the moving averages around 65. Conversely, a move below last week's low would signal a continuation lower.

AAPL also provides a good example of a stock becoming oversold and remaining oversold. Note that the stochastic oscillator has been oversold since May 18. As long as the stochastic oscillator remains below 20, momentum should be consider both oversold and bearish. It would take a move back above 20 to revive momentum and jumpstart a bounce.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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A Dead Cross For Apple

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