Apple Inc (AAPL)

[morpheustrading]

Why AAPL Is Technically In Trouble This Time

After just a one-day bounce off its lows on November 1, the Nasdaq 100 Index ($NDX) plunged right back down to pivotal, long-term support of its 200-day moving average just one day later. Why is the Nasdaq displaying such relative weakness to the rest of the major indices? Blame it in no small part on the persistent bearishness and downright ugly chart pattern of Apple ($AAPL), a former market leader and heavily-weighted stock within the Nasdaq 100 Index.

Last Friday (November 2), AAPL sliced through crucial support of its 200-day moving average for the first time since June of 2011. Now, AAPL is also in danger of losing horizontal price support of its prior “swing low” from July of 2012. If it does, it will become the first convincing “lower low” that AAPL has formed in years. As an example of just how negative recent price action has been, notice on the annotated chart below that AAPL plunged 3.3% last Friday, well below its recent low, even though the main stock market indexes still retained a portion of their previous day’s gains. AAPL has become a clear example of a stock exhibiting bearish divergence and relative weakness to the broad market:



Although our bearish analysis will undoubtedly anger the loyal army of Apple fanboys, we are merely being objective by saying that recent price action of AAPL (and quite a few other former market leaders) indicates a changing of the guards is on the horizon. However, the big problem is the replacement guards have not yet arrived. Until new leadership stocks start popping up, there will likely be no impetus for a sustainable broad-based rally.

In conclusion, if you've been holding $AAPL for a while, did not yet sell, and are still holding out hope (a very deadly emotion) that the stock will recover, be warned that you are playing a very dangerous game. We personally view any substantial bounce in the stock as a chance to sell into strength and/or initiate a new short position, because the technical are indicating further downside to come.