Apple Is Getting Over-Extended

|
 |  Includes: AAPL, QID, QLD, QQQ
by: Andy Zaky

As Apple (NASDAQ:AAPL) approaches $300 a share, the stock has gotten overextended in the intermediate term. Yong Pan at Cobra's Market View sent me an interesting chart early Monday morning and has since published it at his site. The bottom line is: Whenever Apple gets this overextended it tends to lead to an intermediate-term steep sell-off in the stock. It has only gotten this overbought 3 other times in the past 4 years. Most recently at the top of the April 26, 2010 highs.

It's important to note however, that stocks can go overbought and oversold for extended periods of time. Especially a high beta-name like Apple where the stock tends to swing huge in either direction. That being said, I think the pattern in the way the stock tends to trade is pretty important and might indicate some immediate weakness ahead.

I finally exited my $290-$300 October 2010 call spread for a very solid gain. I'm looking to get back into the name once it has had a chance to take a breather. It has already more or less hit the October $300 price target I set when the stock was trading in the $250's a few weeks ago. I think $295 could be the top or very close to the top for at least the intermediate term. The stock needs to pull-back before taking a crack at breaking and holding above $300 a share.

Disclosure: Short the QQQQ as of Friday and Monday.