I have written about Apple (NASDAQ: AAPL) on a couple of occasions in the last nine months and in both cases the articles were bearish in nature. This article is one with two different outlooks for the stock.
Apple stock drew my attention again as it appeared on my bullish scan last night. Apple stock appears to have formed a base over the last three of four days and now the daily stochastic readings made a bullish crossover. These developments make me think that Apple stock rallies over the next week or maybe even two. That being said, I don’t see the rally taking the stock above the downward-sloped trendline we see on the chart.
The reasons for the long-term bearish stance toward Apple are two-fold with some coming from the weekly chart and some coming from the sentiment toward the stock. Looking at the weekly chart, we see the full length of the trendline and how it dates back to last summer.
The stock made four attempts to move above the $130 level in the first seven months of 2015 and failed to close a week above that level all four times. After the last failed attempt the stock fell rather sharply. It rallied back from August through October, but then failed in the $122 area and that was the creation of the trendline. The blue arrow marks one of the bearish articles I wrote.
Notice how the stock never closed below $120 between the four attempts to close above $130. Then the stock failed to close back above the $120 level on its rally. I write often about how former support can turn into resistance on the way back up and that is the case here.
The stock rallied again in the first quarter of this year, but the rally died at the 52-week moving average and the trendline. That second blue arrow marks the other bearish article I wrote.
That brings us to today. I can see AAPL rallying based on the developments on the daily chart, but I don’t see it breaking above the trendline and the 52-week moving average which are essentially sitting right on top of one another. Part of the reason I don’t see the stock breaking the resistance is the sentiment. As the stock has fallen as much as 30 percent from last July to the recent low, analysts and short sellers are still bullish on the stock.
The short interest ratio has moved up to 2.32, but that is still pretty low given the decline in the stock price. There are 47 analysts following the stock with 39 “buy” ratings and eight “hold” ratings. Those are the exact same numbers we saw three months ago. Despite the obvious downtrend, analysts as a group have not changed their ratings one bit. I also get the feeling that the recent short selling would get wiped out if the stock were to rally back up to the $105 area.
If you are a short-term trader you could make a short-term play on the bullish side, but I think the better play is to wait and short the stock when it gets up near the moving average and the trendline. On the downside move, I would target $90 at the very least and if the stock breaks that support, it could drop all the way down below $80.