After starting the week with a 4: 1 split that propelled its already soaring stock to a new record, Apple (NASDAQ 🙂 collapsed yesterday even as it saw its biggest jump in nearly two months. It appears investors are cashing in high-valued stocks in favor of stocks that weren't anointed market enthusiasts during the early months of the pandemic.
The movement can be seen as being driven by the confluence of two fundamental factors – the belief that the Fed's liquidity will support stock prices and, together with a possible vaccine, should bring markets back to normal, making non-technical stocks much get more room to grow.
Indeed, the disparity between the technology sector and the broader market is significant: the S&P 500 Index is up 10.8% YTD while it is up 42% over the same period, almost 4 times that of the broader market. And of course, valued at 87% prior to yesterday's setback, Apple sits at the top of the pyramid of the US's most valued companies, with a market cap of over $ 2 trillion, the first US company to achieve this goal. reached
The fact that Apple reached this milestone during the worst global pandemic in 100 years is testament to the iPhone maker's ability to sell its products, even during disruption and economic uncertainty. Despite yesterday's sharp drop, the YTD share is still up 75.6%.
In addition, although JP Morgan analysts think "investors have widely acknowledged the rich valuation of Apple's stock," the bank still sees room to run for the stock. JP Morgan raised his price target to $ 150 from a split-adjusted $ 115.
So, was yesterday's drop a game changer for the stocks? Possibly, but we can't be sure at this point.
While valuations certainly matter in the long run, Apple is still strongly on an upward trend, and until it reverses, it is likely to remain higher. So from a trading perspective, we consider what happened yesterday as a buy dip.
As dramatic as yesterday's drop was, it found support from both a pennant – bullish after a $ 13 jump within three sessions – and the bottom of the bullish channel since July 24.
Note that the volume peaked amid the previous rise to the pennant range, in which fresh bulls replaced tired but saturated bulls that wanted to pay out. Yesterday's slump occurred at significantly lower volume, showing which direction broad participation is attracting, and where the oomph actually is, which is pointing upwards.
A sharp return movement after the outbreak of a continuation pattern is classic as the initial burst sparked by a short press and numerous buy orders awaiting an outbreak are triggered and then paid out. As such, we consider this only as a buying opportunity.
Trading Strategies
Conservative traders may want more evidence of the prevalence of demand with at least one long green candle, if not for the price of the long red candle from yesterday.
Moderate traders can wait for that reaffirmation of support, but can also go with a deeper dip, willing to risk the small exposure after approaching the pennant's support.
Aggressive traders are likely to join immediately, as they manage the impact of their timing on a risk / reward ratio that suits their tolerance.
Aggressive Trade Sample
Admission: $ 130
Stop Loss: $ 127
Risk: $ 3
Target: $ 139 – the implied target of the pattern
Reward: $ 9
Risk: Reward Ratio: 1: 3
Author's Note: This exchange may fail. If your account or temperament can't withstand this loss, don't trade it. We cannot know if it will work. We're just betting on the odds that the usual market dynamics will emerge.
We accept that some of our transactions will be losses and strive to cover these losses and make a profit. Therefore, only enter a trade whose risks you understand and accept and which you can survive trading on another day … or 10.
