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DOUBLE TOPS


Apple Computers' Double Top

01/17/02 12:15:18 PM
by David Penn

The latest offering from Steve Jobs & Company has critics and fans buzzing. But the stock market seems less than impressed.

Security:   AAPL
Position:   N/A

Full disclosure: After years of being a Macintosh partisan, gladly tolerating less computer for more money, I finally jumped ship last spring for my first PC. I haven't missed Macintoshes for a moment since.

As such, I must confess to a little predatory pursuit of Apple Computer's soaring stock price since the post-September 11th bottom of 15. Up 60% by the beginning of January, Apple Computer has captured the attention of Mac fans who had been waiting (and waiting and waiting. . .) for a new product to justify their PC-free existence. Steve Jobs and Apple Computer have delivered-- at least in the minds of many-- just that: a new, flat screen iMac with an 800 MHz processor and a "SuperDrive" for burning CDs and DVDs.

Double top or failed 2B test of top? Either way, Apple looks headed back down.
Graphic provided by: MetaStock.
 
Unfortunately, to paraphrase the classic one-liner, that may be all there is to this fire. Apple Computer's stock price peaked during the unveiling of the new iMac (which received almost universal acclaim). And though prices made a successful test of previous lows at 20.5, the subsequent rally in the second half of December failed to penetrate resistance at 24, the prior rally top. Since failing that test, shares of Apple Computer have retreated back to the previous correction low of 20.5. While the long tails on the bottom of the candlesticks representing recent trading are extended enough to suggest waning strength on the part of the bears, the fact that AAPL has failed a test of the top and is now headed toward a test of its correction lows is an ominous sign for Apple bulls.

Another bearish warning sign has to do with the trendline break in Apple Computer, a break that occurred during the correction from the failed test of the top in the second half of December. This break also helps set up the upside trendline as a potential resistance zone should shares of Apple Computer attempt to rebound after dropping 12% in less than one week. This particular trendline break resembles the 2B trendline test of trend reversal popularized by Trader Vic Sperandeo: the "2" refers to the correction low following the initial rally top (which is the "A"), and the "B" refers to the second top which either follows through, surpassing the high as point A, or fails and retreats below point 2. In the case of Apple Computer, the stock looks to have indeed retreated after hitting point B. The current question is whether or not Apple Computer will find support at the previous correction low (point 2), or sink beneath that level, resuming its bearish decline.

The possible breakdown target point for a successful Apple Computer double top would take prices down to as low as 17, which is an area of, at least, some congestion as Apple Computer was making its advance from the September lows of 15. Where Apple Computer might go from there is anyone's question. The stock has been pinned beneath 30 since October 2000, when Apple Computer gapped down 40%. While not a line in a true Dow Theory sense, Apple Computer has been going nowhere fast for a year and a half. The likely collapse from these levels suggests that Apple Computer's troubles with topside resistance are far from over.



David Penn

Technical Writer for Technical Analysis of STOCKS & COMMODITIES magazine, Working-Money.com, and Traders.com Advantage.

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