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Apple Inc. (AAPL): A 3-T Look At Stock Next Move

 June 27, 2013 02:49 PM

(By Rich Bieglmeier) Stocks have been rolling higher since hitting a near-term bottom. However, one large, conspicuous name has been missing during all the green fun, Apple Inc. (AAPL). While the indexes have bounced nearly 4%, big Red has gone the other way, dropping 2.8% and underperforming the market badly.

What's up?

Let's take a 3-T (technical) look at Apple to see what might be next according to the stock charts.

The first thing that we notice is that weakness is accompanied by falling volume; contrast that with rising volume as AAPL fell from mid-September through mid-April's 52-week low.

[Related -Google Inc (GOOG): Why Nest Labs Deal Is A Wakeup Call For Apple Inc.?]

Falling volume escorting falling prices tells iStock that there is a lack of commitment from sellers, which means it would not take too much effort from bulls to wipeout recent losses.

The next obvious point is April's 52-week low and pivot-point higher for Apple. The U-turn should provide support for the stock; however, if the price closes below $385ish, then $350 comes into focus rather quickly.

We put the odds that Apple breaks April's low at approximately 25%. Why do you ask? As we type, the NASDAQ 100 member's stock is trading more than 1 standard deviation below its normal 20-day volatility. In English, it means the stock is oversold and stretched a little to the downside.

[Related -Apple Inc. (NASDAQ:AAPL): Why Gross Margins Will Expand In 2014 and Beyond?]

As you can see on the chart below, this condition doesn't last too long before Apple recovers. Since the middle of January, AAPL rallied above the 20-day average once and twice to the top of the stock's "normal" range. If history repeats and the tech titan sticks to the script again, then Apple should trade north of $428 in the next couple of weeks.

The third and final "T" shows that momentum as measured by rate-of-change (ROC) is actually strengthening in for the past five and 15 day timeframes. Typically, a stock's near-term performance will follow momentum's direction. In this case, up. While the 25-day ROC is heading lower, it is approaching support levels, which means the 25-day ROC could level out.

Overall. iStock's 3-T review of Apple Inc. (AAPL) reveals a strong, possible short-term trade with an attractive reward to risk ratio. If the past is prologue, then 20-day volatility suggests Apple has roughly $34 of short-term upside and less than $10 to closing at a new low. To break the intra-day low, Apple would need to move two-standard deviations below its normal trading range; which is where the stock turned around following its three most recent selloffs.  

Patient investors might wait a day or two to see if Apple tests the 52-week low; however, strengthening momentum hints that further weakness could be fleeting.



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