Should You Buy the Apple Gap Lower?


Apple ( AAPL ) gapped lower by more than 5% this morning on disappointment over the pricing of its new iPhone and no China Mobile ( CHL ) deal. What is important to realize is that, coming into this very well-publicized event, we saw a big surge in call buying, which set a high bar, as I discussed with Reuters . This makes the odds of a big drop on any slight disappointment high, exactly what we're seeing today.

Getting to the chart of AAPL, it peaked right around a 38.2% retracement of its all-time high. This is a common retracement level and one that I noted could be strong resistance.

So there was too much hoopla ahead of the event, a technical area of resistance, and now a big gap down - what do you do?

Looking at data since 2000, this is the 16th biggest gap lower - checking in at -5.59%.

There have been 23 gaps lower of more than 5%, and looking at the returns of those gaps, it does seem like buying the opening gap is wise. In fact, it is up 1.06% the rest of the day. Yet, that strength looks to be short-lived, as a week later the shares are down another 4.28% and up just 35% of the time. A month later it doesn't bounce much either, down 3.80%, but up 48% of the time.

All in all, AAPL might be gapping lower today, but I don't think you should step in front of it just yet. It very well could continue to drop in the near-term.

This article by Ryan Detrick was originally published on Schaeffer's Investment Research .

Below, find some more great content from Schaeffer's Investment Research:

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Twitter: @schaeffers

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks , Technology

Referenced Stocks: AAPL , CHL , SODA

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