Long-in market and investor favorite (NASDAQ 🙂 stocks of Apple (NASDAQ 🙂 have recently been sold amid the cyclical rotation from technology stocks to value stocks. As a result, the iPhone maker's stock could end up in a bear market.
However, this is not a foregone conclusion. There are several parameters to keep an eye on to determine the stock's viability, as well as the factors that turn the balance between supply and demand.
Note that the stock fell a whopping 25% in September, as the tech sector suffered a sell-off. Both the and Technology Select Sector SPDR® ETF (NYSE 🙂 fell simultaneously, each losing nearly 15%.
While both benchmarks were able to recover from those drops, Apple was only able to climb 5% above its September peak, slipping immediately and is now 13% below that level. While Apple may have come under pressure from the technical defeat, it underperformed the industry during this period.
On Monday, February 15, Apple stock fell 1.6%, beginning the fall that created the left shoulder of Apple's H&S summit. In four sessions, Apple fell 4%, while the NASDAQ 100, of which AAPL has a weighting of 11%, fell only 1%. During the same period, news broke, via a SEC filing by Warren Buffett's Berkshire Hathaway (NYSE :), that the holding company had sold $ 11 billion of its stake in Apple by the end of 2020, although it still retains $ 120 billion . of Apple shares in his portfolio
It is useful to speculate that somehow the news was the cause of this slump, but the actual trigger remains unclear. Whatever actually triggered the sell-off, Apple completed a reversal in the form of an H&S summit and is now pennant, whose downward breakthrough will extend the decline. The importance of patterns depends on their context. The H&S is complete as the price has fallen below the upward line since the March bottom and the pennant has been moving above an upward line since the September slip.
Note that the volume gives a negative divergence from the rise since the September low, while a more focused volume study reveals that it has risen along the declines in the little H&G head and right shoulder, as it dries up in the rallies that preceded it, showing that participation has a downside.
Even if the price bounces off after a completed little H&S top and a pennant, not yet complete, it could still develop a large H&S top, with the red trendline forming the neckline.
The 50 DMA represents the H&S crest, the 100 DMA the pennant, and the 200 DMA the potential neckline of a massive H&S crest since September, which – if this scenario plays out – is only a halfway point.
The RSI provided a decided breakthrough downward, indicating that the price could follow, below the red line. Certainly, the RSI is the most oversold since May 2019 and invites you to take a jump. If that happens, it could serve the massive H&S theory.
Trading Strategies
Conservative traders should wait for the pennant to complete with a downward break that also includes the red trendline and the 200 DMA below, then wait for a bounce back that demonstrates resistance.
Moderate traders would wait for the downward break of the pennant and the red trendline, and then wait for a corrective rally for better participation, if not further confirmation.
Aggressive traders could go short on a downward break of the red trendline or a retest of the H&S neckline. A coherent trading plan is essential.
Here's an example:
Trade Sample
Admission: $ 128
Stop Loss: $ 130
Risk: $ 2
Goal: $ 120
Reward: $ 8
Risk: Reward Ratio: 1: 4
Author's Note: This is just an example, a way to approach trading based on the analysis within the post. The sample can fail even if the analysis is correct, and it can also be wrong. If you don't understand and don't accept the risk, don't act. Include your budget, timing and temperament in your trading plan. Practice small trades until you learn how to adjust your plans.
