Chart Of The Day: Apple Shares Are Ripe For A Fall
Investing.com | May 12, 2021 09:32AM ET
Mounting inflationary concerns have been buffeting equities for some time now. Recently, the market sector that's suffered the most are high-flying technology stocks, after a stellar 2020.
Investors fear that if inflation heats up, the over-extended valuations of tech shares will no longer be supported by Federal Reserve accommodation and rates will have to be hiked no matter what the US central bank has been saying about lower-for-longer interest rates. With this worry in mind, investors have been repositioning portfolios to increase the weight of value assets, at the expense of growth sectors.
This recent phenomenon, of investors cycling in and out of tech shares based on their outlook for a reflation trade, has weighed on the tech-heavy NASDAQ 100, which is down 3.9% for the year. But it's most visible in the recent action of shares of iPhone maker Apple (NASDAQ:AAPL) which has been underperforming, and is down 5.1% YTD.
The weakness in technicals tells a cogent story:
Apple shares are struggling to not complete a large upward sloping H&S top. The rising neckline provided hopes the stock would continue to make new highs, but the slippage during March was the first sign of trouble.
That was followed by a lower peak on Apr. 29, which provided a second, negative signal. Finally, the price once again fell below the neckline, after which it found support by the 200 DMA and managed to close a hair above the neckline.
However, the bearish MACD and RSI both already fell below the uptrend line, ahead of the neckline, suggesting that risk is clearly to the downside. Moreover, the broadness of the pattern suggests heavy interest from traders, so if it completes and reverses, there will be a strong reaction.
If the pattern continues along its natural mechanics, the downside breakout will trigger shorts. As the short positions increase, and longs get stopped-out, demand will reduce.
Trading Strategies/h2
Conservative traders should wait for a new low, below the Mar. 8 low of $116.21, which would establish a descending series of peaks and troughs, before risking a short.
Moderate traders would short with a close below the 200 DMA
Aggressive traders could short at will, if they accept the added risk of no trend confirmations, which would be the price to pay for the higher reward of beating the rest of the market. Money management is key.
Here is an example.
Trade Sample:
- Entry: $125
- Stop-Loss: $130
- Risk: $5
- Target: $110
- Reward: $15
- Risk:Reward Ratio: 1:3
Author's Note: This is a sample. You need to tailor a trade plan to your timing, budget and temperament. Till you learn how to do this, use our samples, but only for the purpose of learning, not for profit, or you’ll end up with neither. We guarantee it.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.