Watching 200DMA retest for $AAPL. Success if it closes above Friday's high.
— Duru A (@DrDuru) Aug. 3 at 04:56 PM
Watching 200DMA retest for $AAPL. Success if it closes above Friday's high.
— Duru A (@DrDuru) Aug. 3 at 04:56 PM
The first trading day of August began in a promising fashion for apple (AAPL) as it rallied off its 200-day moving average (DMA) and reversed all of Friday's losses. I was getting set to call “victory” for AAPL and load up on call options. I stopped in my tracks when later I saw the stock crater right through its 200DMA support on a nasty reversal of fortunes. Apple closed with a 2.4% loss that marked the first time in two years that it closed below its critical 200DMA support.
Apple breaks down below its critical 200-day moving average (DMA) support and bullish trendline
Source: FreeStockCharts.com
This longer-term daily chart shows the importance of the 200DMA (red line here): the breakdown in October, 2012 led to a deep and prolonged swoon. Once AAPL overcame resistance at its 200DMA, a well-supported rally ensued.
Source: StockCharts.com
The first daily chart shows that not only did AAPL break down below its 200DMA but also the trading range that kept AAPL pivoting around its 50DMA since February has definitively broken. While I want to remain bullish on AAPL, the chart says otherwise. AAPL will need to close above its 200DMA with subsequent buying follow-through in order to turn the tables on the grumpy bears. Apple's performance has been so consistent in recent years that a simple strategy to trade on the 200DMA has been sufficient for riding new all-time highs and bailing before giving back substantial profits.
It has been a while since I have updated my various tools for trading AAPL. I am in the process of fixing that.
First, in “The Apple Trading Model Simplified” I demonstrated the day-trading power of simply trading in the direction of AAPL's open. Since then, the percentage of days in 2015 that violated this rule declined toward the percentages of prior years. Note however that since AAPL's July earnings, the stock has experienced a surge in reversals from the open…including today's breakdown.
