Is Apple Set To Fall?

12/06/12 08:23:00 AM

by Matt Blackman

Apple has seen a massive runup and correction in the stock. Are its best days behind it?

Security: AAPL
Position: N/A

There was an interesting tweet from journalist Michael Kahn on December 3, who writes the "Getting Technical" column for Barron's Online. His message was simple: Apple [AAPL] "looks set to eat you alive." It was accompanied by the chart seen here in Figure 1.

FIGURE 1: AAPL. Here's a chart posted by columnist Michael Kahn showing the bearish volume signature on AAPL.

Graphic provided by: www.twitter.com/mnkahn.

What made it all the more interesting was that it was confirmation of an observation more than two weeks ago by stock trader Dan Zanger warning of a potentially bearish head & shoulders pattern setting up on the stock chart -- an observation that was made before the stock hit the neckline and miraculously rebounded right on schedule after breaching the neckline and then recovering intraday on November 16.

It is always risky to front-run a chart pattern, but in this case it provides a useful roadmap warning for the trader who is thinking that it is time to again become uber-bullish on the stock. Note also the bearish divergence on the relative strength index (RSI) in the middle chart window in Figure 2, which confirms the growing weakness in the stock.

FIGURE 2: AAPL, DAILY. This chart shows what it will take to confirm the bearish head & shoulders pattern -- a scenario that would make sense if the fiscal cliff cannot be averted in time or if Christmas sales for Apple disappoint the Street.

Graphic provided by: TC2000.com.

Given the situation that exists today with the fiscal cliff risk and the fact that the first 20 months of the election cycle has historically produced disappointing stock returns, renewed weakness in Apple heading into the year-end makes sense.

However, it is dangerous to trade until there is some confirmation that Apple is indeed running out of steam. I will be watching the stock closely and writing about it at http://www.twitter.com/RatioTrade for those who are interested.

Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He is the host of TradeSystemGuru.com. Matt has earned the Chartered Market Technician (CMT) designation. Find out what stocks and futures Matt is watching on Twitter at www.twitter.com/RatioTrade

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HEAD & SHOULDERS

Is Apple Set To Fall?

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