During Wednesday's Wall St. session, shares of Apple (NASDAQ:) fell just over 1%. The Cupertino, California-based tech giant, which has a weight of more than 11.5% on the , was a major reason why the tech-heavy index suffered its worst defeat in two weeks yesterday.
The stock sale of the consumer electronics, computer hardware and software manufacturer, as well as the maker of the iconic iPhone, followed warnings from some of the largest investment banks – including Goldman Sachs, Morgan Stanley and Citigroup in recent weeks – on the growing supply chain and risk of labor shortages echoed earlier this week by other global manufacturers amid the ongoing pandemic.
Indeed, investors have been more cautious since last Friday's August, which not only disappointed but also fell far short of market expectations. It was the worst read on the main statistic in seven months.
If all that wasn't enough pressure, the Goldilocks economy we referred to last week, including growth and continued support from the Fed, evaporated. In yesterday's release, the Fed noted that the US economy is "downshifting". Many are reading that as a signal that the central bank is preparing to announce a timeline for phasing out the stimulus.
Yet analysts remain optimistic about Apple. Ahead of the company's annual event in September, this year on the 14th, where new iPhones are generally introduced, Baird analyst William V. Power raised his price target for the stock from $160 to $170, expecting that the introduction of the iPhone 13 will push consumers to upgrade their outdated Apple smartphones.
While the megacap company's fundamentals look promising enough, we see some weakness in the technical chart.
Yesterday the stock completed a Dark Cloud piercing pattern, which was so deep it almost turned into a Dark Cloud cover.
Both are two candlestick patterns, with the second day starting higher but closing much lower than where it started. This serves to attract unsuspecting traders, but then leave them much lower than where they started. The first, piercing pattern wipes out at least half of the gains from the first candle, while the second, dark cloud cover, wipes out all previous gains.
Anyway, it is a bearish pattern and it indicates a correction. If that scenario continues, it could help the price complete the head of an H&S summit. Note how after a strong rally – nearly 22% between the June 3 low and the July 15 high – the stock just traded.
This indicates that investors are not sure what to do next. That is often the first step to a top.
Note that both the volume and the RSI caused negative deviations from the rising price. The RSI completed a minor double-top after peaking to its most oversold level since January 2020, falling back to what could turn out to be the neckline of an H&S top, then watching it bounce back into the right shoulder, in his failed attempt to register another high, and falls below the neckline.
Moderate traders may risk a short if the price retests its highs, reducing exposure.
Aggressive traders would now go short provided they understand and accept the higher risk associated with the higher reward of acting for more cautious traders.
Trade example
Input: $155
Stop Loss: $157
Risk: $2
Target: $149
Reward: $6
Risk: Reward Ratio: 1:3
