On Apple, I'm Recommending a Short Position This Week

Markets continually evolve and change in an instant. In last week's issue of my weekly newsletter EPIC Insights, I mentioned how Apple (AAPL), a company that I admire and think will prosper in the years ahead, did not show clear technical patterns that justified making a trade. One week later that has shifted. With AAPL, we now have a clear technical picture and can position for future price changes.

The market has staged a broad, powerful rally since bottoming in early March. Looking at AAPL's chart offers an indication of how sharp the rally has been. Since bottoming at $83.11 on March 9, AAPL has increased to a current price of $115.99 in four short weeks (40%). The rally has created a sharp uptrend (green line) that has supported the stock price, but is also unsustainable. Measuring the slope of this trend line, AAPL would need to increase $3 per day to maintain the trend. Considering that such a sharp move would put AAPL above $200 in just over a month, the stock clearly needs to rest before moving higher.

click to enlarge

I have never liked to position myself based on only one technical reading. With AAPL, two other data points also call for short-term weakness. The stock price is now approaching the 200-day moving average (MA) at $118.78 and a key Fibonacci level at $118.64. Combining an overextended rally with looming resistance, opportunistic investors can position for a quick trade. Over the coming weeks, AAPL will either fall or stagnate. By absorbing the sharp rally and consolidating gains, AAPL will build a strong base from which it can move higher. Within the pause, I look for opportunity.

I continue to like AAPL long term, but believe short-term weakness will manifest in the days ahead. For that reason, I recommend a short position as this week's technical trade. Use a close above $120 as a stop loss order to exit the position.

Comments

[Eldernorm:]

Suggestion.... Apple follows the dow / nasdaq, sometimes a little higher or lower but people do not understand Apple so they just buy it based on the market, not the company.

If you are micro buying, buy on twitch.... If you are looking at a solid great company that has nowhere to go but up, buy Apple and hold for 90 to 120 days.

Apr 06 09:43 AM

[Techtrader10:]

I'm not a big fan of the 200 day moving averages or the Fibonacci theory, but what Sean Hannon says about needing to maintain a $3 per day increase to sustain the current trend looks correct. I agree with him, there are no fundamental reasons to support a continuation of that steep of a trend.

Apr 06 09:51 AM

[greataaplpi...:]

I think, it is your BIG snoze beak that hampers your "objectivity & so called recommendation" to short Aapl. Aapl will be moving above its' 200 day moving average shortly - or is that what you meant to say?

Your advice is purely self serving, b/c you're short aapl for April options expiration. Aapl has been hammered until March 6/9th '09 by people not unlike you- Mr Hannon & shortly (excuse the pun) aapl will return back to were it should be, I believe this summer. Don't be a fibbing Pinnocchio giving bad Aapl stock trade advice or who "nose" how long the nose will grow? Even Pinoc. had to tell the truth. I'm long aapl since 87.

Apr 06 11:53 AM

[pdq:]

Apple reports earnings in a couple weeks. With Apple, there is almost always a run-up prior to earnings, and almost always a sell-off afterward.

I wouldn't go short before the run-up. I'd wait until a day or two before earnings. An upside surprise could spoil that strategy too, but it hard for Apple to surprise, since it almost always (lately) beats it's own conservative guidance. And then the stock gets hit when they issue next quarter's conservative guidance.

Buy on run-up, sell _before_ news.

Apr 06 12:23 PM

[Constable Odo:]

Why don't you recommend a short position on RIM this week? It's gone up over 25% in a few days. Aren't they ready for a near-term share drop? Just trying to help people make some money.

Apr 06 02:02 PM

[FreeRange:]

You are right on - RIM is over priced at this point - the runup after their earnings report is way over done and irrational. If they hadn't given a significant number of phones away for free, they would never have come close to these numbers. Even though they got paid for the phones by Verizon, this does not bode well for RIM future sales - it is very destructive to a brand to have their product given away for free as it diminishes its value in the eyes of consumers, especially when you look at what should be a high perceived value product, a leading smartphone.


On Apr 06 02:02 PM Constable Odo wrote:

> Why don't you recommend a short position on RIM this week? It's
> gone up over 25% in a few days. Aren't they ready for a near-term
> share drop? Just trying to help people make some money.

Apr 06 04:00 PM

[marketman:]

the charts say loud and clear, $87.00 is where this needs to consolidate to.

and this heads downward next 12 days

calls are way overbought

a pop 3 days before earnings, however earnings will disappoint
reported in April...

marvelous trading stock however the trade is to the downside through the summer with the economy where it is.

Apr 06 05:05 PM

[thestock tr...:]

I completely agree, from a technical prospective AAPL is due for a selloff and from a fundamental basis is starting to look expensive. We can't forget as great as AAPL is as a company they are still a retail company and the consumer is pulling back. Long term love the stock and they will continue to innovate.

Apr 06 05:05 PM

[t0000:]

So I shorted aapl today around high $113's. That didn't take very long to almost get stopped out (half day)...Do I buy back now or bump my stop-loss to $138 where it will be trading on earnings day before announcement? Thanks

Apr 06 07:44 PM

[Drew Arnold:]

Never bump your stop buddy, let it trigger. You'll have another opportunity here so don't get bogged down with your current position.


On Apr 06 07:44 PM t0000 wrote:

> So I shorted aapl today around high $113's. That didn't take very
> long to almost get stopped out (half day)...Do I buy back now or
> bump my stop-loss to $138 where it will be trading on earnings day
> before announcement? Thanks

Apr 07 03:07 PM

[brewer:]

This one is by far best played over the long term, not the week. Just look at your own charts to figure that one out. It's perpetually undersold, except during a time of panic and perhaps during the exuberance that took it to 202. iPhone revenues are ramping up and will continue to do so. Look at FCF. No one has a competing product. Another blockbuster product will be coming out soon, and I think you want to be holding at that time!

Apr 08 12:45 PM

[SmarterThan...:]

Wrong again, Sean. Back to spinning pizzas for you!

Apr 14 10:45 AM