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Apple (NASDAQ: AAPL) was enjoying a pretty good month through last Friday, with the stock gaining almost 8% through the first 23 days of the month before pulling back a little on Monday. Looking closer at the daily and weekly charts for Apple stock makes me think that there is more movement to the downside coming.
Let’s look at the daily chart first. The first thing that jumped out was how Friday’s high and close were very near to the low in July that could now act as resistance. The other items on the daily chart that caught my attention was that both the 10-day RSI and the daily slow stochastics were both in overbought territory until the pullback yesterday.
The slow stochastic readings just made a bearish crossover as a result of the selling, but more importantly was how this is the third time in the last eight months that both indicators hit overbought territory.
In the first two instances, Apple stock dropped just over 8% from top to bottom in April. Then, during the drop in July and August, the stock dropped over 30% from the high to the low.
The weekly chart also presents two possible resistance points, one via a previous high and the second via the 52-week moving average. The high last November was $118.25, before the stock experienced a 12.6% drop. The high last week was just above that level, but it is close enough to consider it as possible resistance.
Looking at the 52-week moving average, we see that it is presently at $119.04, and the stock closed right on it last week. I made note of a time last fall when the 13-week moving average had crossed bearishly below the 52-week moving average. Then when the stock was trying to rally back, on the initial approach of the 52-week it acted as resistance. We are seeing a similar situation now.
Apple will report earnings after the close on Tuesday, with analysts expecting the company to earn $1.88 per share on revenue of $51.11 billion. The company has beat its earnings estimate each of the last four times it has reported, but investors haven’t been all that enthused. In fact, the peak in July came ahead of the last earnings report. It’s looking eerily similar to the situation where the stock gapped higher one day, erased the gain the next day and then gapped lower on earnings.
The sentiment toward Apple stock is fairly optimistic heading into the earnings report, with a short interest ratio of 1.52. Thirty-eight analysts have the stock rated as a “buy,” 11 have it rated as a “hold” and one has it rated as a “sell.”
Shorting the stock ahead of the earnings report is risky, but I just think there are too many resistance points between the daily and weekly charts for the stock to overcome – unless the earnings report completely blows out the estimate.
Even in April, when the company beat its estimate by 7.9%, the stock fell after the report. If it is like July, you don’t need to short the stock ahead of the report. There will be room to short it after the report.
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