Another Look at AAPL

Back on the 13th September, before AAPL peaked, I started talking about the bearish looking setup on AAPL, and I’ve been revisiting that regularly since. It’s well worth keeping an eye on as AAPL is now so large that it is a key market mover by itself. You can see that post here.

I was looking at it last week and saying that the first key support was the 200 DMA, which was touched on Wednesday, and then broken on Friday. On a break below there is possible declining channel support at Friday’s low but the main support levels are the possible head and shoulders (H&S) pattern necklines in the 567 and 520 area. Here’s that setup on the AAPL daily chart:

The main chart that I posted on 13th September however was the monthly (log scale) chart showing the main rising channel on AAPL since 2003. On that chart main channel support is at slightly over 400. Obviously that would be an ambitious target, but it’s worth noting that of the five previous instances where there has been a retracement after a monthly RSI negative divergence like this, only the one in 2011 was smaller than 42%. A fall from 705 to 400 would be slightly over 43%, so the drop would be within the normal historical range on AAPL.

I would be most surprised to see AAPL break the long term rising channel, and for that reason on my bear scenario I have been favoring a strong bounce from the 567 area, to form the right shoulder on an H&S that would target the 430 area, slightly above that long term support. If we don’t see a bounce from Friday’s low within the possible declining channel that I’ve marked on the first chart, then that is the most likely bounce level, with strong support in the 520 area at the next possible H&S neckline if that breaks. Here’s the long term rising channel on that monthly chart:

As with AAPL SPX is also near a very key support level, and after the very strong reversal from the 50 DMA and the middle daily bollinger band on Friday morning we might well see  first a move to test the lower bollinger band in the 1398 area, but the main target would be rising support from the October low in the 1385-90 area. If that is tested and there is a reversal there, then there will be a confirmed rising wedge from the October 2011 low. If we see that then this strong bearish pattern should limit any further upside over the next few months to the 1490-1500 area at the most, and on a break below it I’d be wondering seriously about a test of the 2012 lows:

The chances are a strong QE rally here are fading fast. No trade suggestions today as I want to see how next week plays out to establish a more definite trend.

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