Apple Forming A Double Bottom?

Apple has sold-off over 20% year to date, but it did gain in one area. ComScore (an internet analytic’s company) reported that US consumers “overwhelmingly” preferred Apple’s iOS devices over the Android platform since 2013 began.

comScoreAccording to the latest data, in the past three months, there have been a total of 10.4 million new US subscribers. Of that number, Apple’s iPhone came out on top with 8.9 million new subscribers, while Android added a meager 2.9 million subscribers (the numbers don’t add up because Blackberry lost over a million subscribers).

 

ComScore dataApple and Samsung continue to cement their titan status in the US. On another note (I know it’s unrelated), but look at Motorola’s continued weakness (Google reports in a couple weeks).

 

The Technicals:

It looks like the possible inverted head and shoulders didn’t work out as I thought, but if you followed the trade (and hopefully hedged as suggested), you should be golden. Want to be clear I am not calling a bottom, I’m merely looking at the technicals:
 

AAPL1Apple is still posting positive divergences on its daily chart (both on the MACD and RSI). The $419 support has to hold, a break below that exposes the $400 level (and makes the chart look even more broken than it already is). Even though Apple broke its downtrend on the last run-up, it technically didn’t make it official by rallying above $485 (it needed to make a higher high).

 

AAPL2What I’d like to see: a pickup in volume. You can’t have a confirmed double bottom with lower volume than when it made its previous low.

 

AAPL3What worries me: Apple’s daily bollinger bands are beginning to expand, meaning a further move to the downside is very possible.

 

AAPLWhat gets me optimistic: Apple’s 50 day moving average has been in a downtrend since late last year. It finally looks like it’s starting to flatten, a sign of a bottom.

 

AAPL2The weekly chart still isn’t giving us any clues on whether to be a bull or a bear. Going forward, as long as you hedge, I still believe you can still play Apple on the long side.

 

Conclusion:

With earnings just around the corner, don’t forget that many analysts have finally started to lower estimates for both this quarter and the next. Can Apple revisit $400? Of course it’s possible. But as long as you hedge correctly, then there’s really no need to worry about your position. Hope this helped.

 
 

Questions? Comments? Leave me a reply.

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9 comments

  1. Thanks for your valuable insights. Is there a way to hedge AAPL if I cannot trade options? I’m not in the US and I don’t have access to US options.

    1. Tough question, I don’t believe so. Best thing you can do is go long and have a stop below $519. Only way you can hedge with equities is by going long in one account and short the stock in another account (same number of shares) and wait for it to breakout/breakdown. Sorry I couldn’t help.

      1. Yes, sorry $419. Don’t make it right under $419 like $418.95 (the machines know that there are stops under there because it’s a big support level and sometimes they will purposely trigger stops and then rally. $418-$418.15 is a good place. And make sure you use a stop limit, not a stop. When volatility increases, a stop limit is your friend, NOT a stop.

      2. A stop limit order means that I define the minimum value at which I’m willing to sell? E.g. 417.5? I get your point but if the stock sinks badly don’t I risk to remain with my shares (I only buy common stocks) unsold? Hope my English is understandable and explains correctly what I mean. Appreciate your answers.

      3. A stop, once triggered, puts in a market order. Meaning you sell at whatever the market price is at, at that moment. A stop limit, once triggered turns into a limit order. However, your broker should allow you to set an area where you prefer to sell. So I set my stop at $418 and my limit at $417.50. My shares won’t get sold for anything below $417.50. If a stock plummets very quickly, with a stop, you’re leaving it all up to the market to sell. Could sell at $418 or it could sell at $416. A stop limit defines your risk.

      4. I understand this; my concern is that if I enter a stop at 418 and a limit at 417,5, if the stock plummets very quickly, let’s say to 412, likely I won’t be able to sell at 417,5 and have to keep my stocks at 412 hoping that they go up again.

      5. Right, but remember Apple is a very liquid stock. You have to decide how quickly your broker will be. My broker has a policy where my order gets filled in less than half a second, guaranteed. If you feel more comfortable, put your stop at $418 and your limit at $417. Highly doubt your broker is that slow, but just to be safe.

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