may be on a tear, rising 10% in about as many days, but the bears
have mounted an excellent defensive blockade.
Let me begin by saying that Apple is an
extremely undervalued stock
. It's also
a great company
with innovative products and a devoted customer base.
So I'm not recommending that long-term Apple investors sell their
positions ... quite the contrary. Long-term investors have every
reason to be bullish on Apple given the low valuation and 36%
However, there are going to be a number of short-term trade
opportunities to make on the shares from the bearish side during
the next several months.
This chart shows the price of
shares along with an important trend line to monitor.
First, the 50-day moving average (orange line) has often acted
as a barrier. In fact, this trend line has successfully kept the
bulls at bay on several occasions since October (blue arrows).
Apple has climbed back up to this moving average, and the bears
should pump up the
selling pressure again
Apple has risen during the past few weeks because investors
expect the company to increase the dividend program. Though a new
dividend would likely provide the fuel to break out above the
50-day moving average, the bears have a few other defensive areas
The stock traded
in a range
(blue lines) from $505 to $615. With the shares firmly below $505
support, expect AAPL to
at that price in the future. The $615 level will also act as
resistance in the event AAPL rises to that price.
In addition to the lateral resistance levels, Apple will also
encounter resistance at the 200-day moving average (black line).
The stock officially entered a bearish trend when the shares made
a death cross in November (red arrow). A death cross occurs when
the 50-day moving average crosses below the 200-day moving
The 200-day moving average is often a very strong resistance
level in a bear trend, and I'd expect this situation to be no
different. This trend line is stronger resistance when it's
declining. The 200-day moving average is at $562, which is smack
in the middle of the trading channel mentioned above, adding
further potency to the trend line.
Sellers have four strong defensive strongholds. The first is near
the 50-day moving average. However, that's the weakest and likely
to be broken on news of a higher dividend payment. The bears have
three more resistance areas - the upper and lower bounds of the
channel and the 200-day moving average - after that to keep the
price from advancing, each one stronger than the last.
So what's the trade?
You can short Apple now with a stop near the 50-day. This is
risky, and honestly has a low probability of panning out. Any
breakout above the 50-day can be bought, taking AAPL for a ride
The $505 level should hold. So short AAPL around $505.
If this resistance area breaks, use the same strategy as
mentioned before ... buy long on an advance to the next
resistance area, which is the 200-day, and short AAPL again at
that trend line.
Equities mentioned in this article: AAPL
Positions held in companies mentioned above: