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Should You Buy the Apple Gap Lower?
) gapped lower by more than 5% this morning on disappointment over
the pricing of its new iPhone and no
) 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
. 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 .
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