Chart Of The Day: Was Yesterday's Apple Selloff Sparked By A Mistake?
Investing.com | Nov 13, 2018 10:01AM ET
During Monday's US session, Apple (NASDAQ:AAPL) shares plunged, dropping a bit more than five percent after one of its suppliers, Lumentum Holdings (NASDAQ:LITE), provided softer forward guidance. According to Lumentum, the forecast change resulted from a request by one of its largest laser diode customers to "materially reduce shipments to them during our fiscal second quarter, for previously placed orders that were originally scheduled for delivery during the quarter.”
Though Lumentum never identified the specific customer, Wells Fargo (NYSE:WFC) interpreted the comment to mean “investors could consider Lumentum’s updated guide as reflecting as much as a 30% cut in Apple orders.” Analysts for the bank likely based their call on Lumentum’s annual report for fiscal 2018, since it listed Apple as its largest customer, accounting for 30 percent of revenue. To reiterate: Lumentum never, in fact, mentioned Apple by name.
Thus, yesterday’s Apple share crash was driven purely by speculation regarding the potential success of Apple’s latest iPhone during the holiday season. Even worse, it was based on comments by a supplier that may—or may not—have been talking about Apple. Let that sink in.
If yesterday’s panicked selloff does prove to be a misunderstanding, imagine the upcoming race to buy on the dip.
Two weeks ago we said that "even with stellar earnings results Apple may top out," and that’s exactly what happened. On November 6 we also said:
“For those who missed the opportunity, look for a bounce as part of a return move to test the reversal’s integrity.”
If you're skeptical of the efficacy of technical analysis, note that the price did in fact return and stopped exactly at the neckline, as predicted, based solely on the principles of supply and demand.
Yesterday’s 5 percent crash ended right above the 200 DMA, which is above the uptrend line since February 9. This offers conservative and moderate risk takers an opportunity, once again, to take a long or short position. Aggressive traders may see a different opportunity.
h2 Trading Strategies/h2Conservative traders must wait for the long-term uptrend to confirm, with a peak higher than $233.47, the stock's all-time high, registered on October 3. Alternatively, they can enter a short position after completing a long-term reversal. As mentioned, the long-term uptrend line is currently below $180 and rising.
Get The News You Want
Moderate traders may enter a long position if the price falls to the full correction—and finds support—at the long-term uptrend line since the May 2016 bottom, currently below $160 and climbing.
Aggressive traders may risk a long position now.
Sample Trade, Aggressive Traders:
- Entry: $194
- Stop-loss: 193, below the 200 DMA
- Risk: $1
- Target: $200, round, psychological number.
- Reward: $6
- Risk-Reward Ratio: 1:6
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.