During Wednesday's Wall St. session, shares of Apple (NASDAQ:AAPL) dropped just a tad more than 1%. The Cupertino, California-based tech giant, which has a weighting of more than 11.5% on the NASDAQ 100, was a significant reason the tech-heavy index yesterday experienced its worst rout in two weeks.
The selloff of the stock of the consumer electronics, computer hardware and software maker, as well as the manufacturer of the iconic iPhone followed warnings from some of the biggest investment banks—including Goldman Sachs, Morgan Stanley and Citigroup in past weeks—about rising supply chain and labor shortage risk that were reiterated earlier this week by other global manufacturers amid the ongoing pandemic.
Indeed, investors have been more cautious since last Friday's August payrolls print which didn't merely disappoint, but fell far short of market expectations. It was the worst read on the key metric in seven months.
If all that wasn't pressure enough, the Goldilocks Economy we referred to last week, which included growth and continued Fed support, just evaporated. In yesterday's Beige Book release, the Fed noted that the US economy has “downshifted.” Many are reading that as a signal the central bank is preparing to announce a timeline for trimming stimulus.
Still, analysts remain bullish on Apple. Ahead of the company's annual September event, this year on the 14th, during which new iPhone's are generally debuted, Baird analyst William V. Power increased his price target on the stock from $160 to $170, on the expectation that the introduction of the iPhone 13 will spur consumers to upgrade their aging Apple smartphones.
Though the megacap company's fundamentals look promising enough, we're seeing some weakness in its technical chart.
Yesterday the stock completed a Dark Cloud piercing pattern, which was so deep, it almost turned into a Dark Cloud cover.
Both are two-candle patterns, whose second day starts higher, but closes well below where it began. This serves to pull in unsuspecting traders, but then leaves them far lower than where they started. The first, piercing pattern erases at least half of the first candle’s gains, whereas the second pattern, the Dark Cloud cover wipes all the earlier gains out.
Either way, it’s a bearish pattern and it signals a correction. Should that scenario follow through, it might help the price complete the head of a H&S top. Notice how after a powerful rally—almost 22% between the June 3 low and the July 15 high—the stock just range traded.
That indicates investors aren't sure what to do next. Which is also, often, the first step toward a top.
Note, both the volume and the RSI provided negative divergences to the rising price. The RSI completed a small double-top after spiking to the most oversold level since January 2020.
Trading Strategies – Short Position Setup
Conservative traders should wait for the price to fall back to what may prove to be the neckline of a H&S top, then watch it rebound into the right shoulder, in its failed attempt to register a new high, and fall below the neckline.
Moderate traders could risk a short, if the price retests its highs, reducing exposure.
Aggressive traders would short now, provided they understand and accept the higher risk proportionate to the higher reward of acting before more cautious traders.
Trade Sample
- Entry: $155
- Stop-Loss: $157
- Risk: $2
- Target: $149
- Reward: $6
- Risk:Reward Ratio: 1:3