With just about every measure, Apple (NASDAQ 🙂 made shareholders very happy in 2020.
Stock is up 83.5% as the year draws to a close. In addition, the iPhone maker passed the $ 2 trillion market cap mark on August 19, making it one of the most highly regarded companies in the world.
Equally impressive, in a year when the coronavirus pandemic ravaged the global economy and left large swaths of consumers unemployed, there is an increasing demand for the latest version of its iconic smartphone, which costs more than $ 1,000.
Along with the stock's astonishing rally, the projected price-earnings ratio rose to 33 times earnings, compared to 22, making it less of a bargain in our opinion at the moment. In addition, stocks gained about 20% last month after Reuters reported}} that there could be a self-driving car from Apple by the end of 2024.
But despite all the good news and user loyalty, Apple is also facing all kinds of headwinds.
Long-time supplier of iPhone glass Lens Technology (SZ: {{948413 | 300433), based in China, has been accused of using forced labor to make iPhone screens. Apple Pay could also soon become the target of an antitrust case by the European Commission after the EC announced it would open an investigation into the app in June. Should that happen, it's in addition to a lawsuit just filed in California by a competitor in the US against the original App Store for monopolistic practices. Apple, along with other major tech companies, has already been scrutinized by Congressional legislators this year.
Nevertheless, the stock hit a new record Monday after an analyst call said it would outperform the mega caps in 2021. However, the fact that the stock collapsed more than the broader market yesterday, just a day after it hit big tech shares higher is a red flag in our book.
The phrase "two steps forward, one step back" characterizes the stock's recent movement. It suggests continuous progress that is not necessarily the case.
In Japanese technical analysis, such an advance is akin to an army pushing forward to eventually withdraw. Likewise for advances that end with a loss.
Tuesday's trading opened higher, but slipped much lower, deep into Monday's candle. That produced a bearish engulfing pattern – a visual representation illustrating a bearish counterattack that failed the bullish advance attempt.
The fact that Monday also saw a rising divide sets this bearish engulfing pattern in motion and becomes an Island Reversal. Since this was the fourth hole in a row in December, this increases the likelihood of a depletion hole, the last flickering of a flame before going out, as stupid money flows into the top of the market, let down by all the good news the smart money was already priced in.
The fact that all of this is happening at this price level increases the likelihood of a decline even more.
These bearish engulfing patterns make up for an Island Reversal after an attrition rift that coincides with the previous all-time record, posted September 2. This provides all the ingredients for a potential double top.
Note: The ROC found resistance through its suppressed momentum, as opposed to the price which had added 18% from its October high and has remained at the same level ever since. The RSI fell below 70 after reaching the overbought level of 73.6
.
It is not a double peak until the price falls below its September 21 low of $ 103.10, with the first peak being the October 13 high of $ 125, followed by the 100 DMA below $ 120.
Trading Strategies
Conservative traders would wait for accumulation above the new heights before going long, or for the completion of the double bottom, too short.
Moderate traders are probably waiting for support to buy the dip.
Aggressive traders are now likely to go short, provided they understand and accept the risk of going against the trend.
Trade Sample
Entry: $ 138
Stop Loss: $ 140
Risk: $ 2
Target: $ 126
Reward: $ 12
Risk: Reward Ratio: 1: 6
