Apple's Obstacles Prior to WWDC

It’s hard not to get caught up in the anticipation of new products and the rapid rise of your favorite stock. Especially at the precipice of what may be the most import event in the company’s history. Of course I’m talking about Apple’s (AAPL) World Wide Developer Conference [WWDC] on Monday, June 9th.

Many investors are expecting, if not willing, Apple’s stock price to go up, up and away. And it may well be deserved, if Steve Jobs introduces the 3G iPhone to the world Monday, and it lives up to the hype. So in the wake of this anticipation and sentiment, it’s difficult to perform a technical analysis. But investors should beware, that there are technical obstacles standing in the path of AAPL.

The Nasdaq made a great move Friday, breaking through its 200 day moving average, rising nearly 48 points to 2550 (+1.87%). But now the Naz has to contend with big gap down resistance at 2575, put in back in January. And the market is tired. AAPL has a gap down from the same day, along with strong price resistance in the 192-193 range. If the Naz approaches this level, I expect many stocks within the Naz, including AAPL, to labor because of price resistance and the current overbought conditions on the daily and 60 minute charts. Additional weight will be put on AAPL from a strong negative divergence on the MACD (see chart).

Annotated Chart of AAPL. This chart illustrates the wedge pattern that AAPL has breached and the gap resistance from January. Also note the strong negative divergence on the MACD, which will put weight on price as well. Click the image to enlarge.

AAPL had a great day as well, rising to 189.43 +4.24 (+2.29). Like the Naz, they both accomplished a wedge breakout, AAPL breaking through the top of the wedge, which was defined around the 188-189 range, and the Naz through 2515. These levels should now become support. This presents an opportunity for traders looking to accumulate prior to WWDC, if AAPL bounces off the gap (approximately 192-193) and retreats, it will likely fall back to wedge support. So buying this weakness is a good risk because the wedge, which was previously resistance should now provide support.

The most immediate threat is the Jobs report at 8:30 on Friday morning, non-farm payrolls are expected to decrease by 60,000 and the unemployment rate to remain steady at 5.1%. If it’s poor or flat, expect the indices to retreat, and to weigh on AAPL with significant gravitas. If the report surprises analysts and beats expectations, then the Naz and AAPL will attack their respective gaps. If there’s one economic report that can move these markets, this is it!

From my estimation, there’s simply too much resistance in front of AAPL to break the gap. So, it looks like we’ll be going into the WWDC with a price sitting just under the gap (around 191-192). We’ll need the power of the Steve Jobs reality distortion field to bring us higher.

Disclosure: Author has a long position in AAPL

Comments

[Thoughtful:]

What Zach "erntheburn" Bass fails to disclose is that he is a swing and day Apple trader. Expect more attempts at market-moving Apple "headlines" from this source.

2008 Jun 08 04:42 AM

[User 175563:]

I don't see how this invalidates my analysis and ideas. Are you suggesting that I preface every article with my trading style? If you want that disclosure, go to my blog, or follow me on Twitter (www.twitter.com/zachba...), where I disclose my positions on a daily basis. To save you the clicks, I'm all cash right now. So, I have no stake one way or the other.

2008 Jun 08 10:30 AM

[David Lentz:]

Nevertheless, some interesting chart-talk. Since the employment numbers came in decidedly on the disappointing side, and with oil storming the barricades and threatening (at least in the mainstream mind) to move on to 150 and beyond (... to infinity and beyond!), one would reasonably expect this coming week to be an excellent time to write some covered AAPL calls, or take profits in positions that have achieved long-term capital gains status (if that makes a difference to your particular situation), or simply get out and await a lower entry point later in the summer (which sure seems like a possibility). I think that buying into AAPL in the wake of WWDC, especially given the climate in the market in general, would be assuming the role of the Greater Fool. But that's just my opinion. Others are cheerfully invited to prove me wrong.

In the interests of full disclosure, I own both AAPL stock and some Jan 2010 call positions, all of which I intent to sit on and ride out any near-term capitulation. I've sold some other AAPL LEAPS positions as they achieved long-term capital gains status earlier this year and am looking for an entry point (maybe around 140?) to open additional long positions in AAPL, probably via 2011 deep-in-the-money LEAPS (a low-cost alternative to owning the stock).

There. That's enough disclosure for anyone.

2008 Jun 08 10:31 AM

[David Lentz:]

So Zack, d'ya really think that even the patented Jobs Reality Distortion Field™ is up to the task of moving AAPL higher, given the broader picture of an economy in flames?

I'm a big fan of Steve's, and dissect every WWDC and MWSF keynote, as he is without a doubt the pre-emminent salesman of our times, and I always like to watch a great performance (it doesn't hurt that the products are second to none -- yes, I'm a Mac fanboy as well).

But if he can manage to inspire investors/fanboys/suck... to put good money down on AAPL stock in these perilous times, I takes off my hat to the man.

Wish I had the cojones to go 100% cash -- but I've proven to myself all too many times that "I CAN be wrong". So I have a weird mixture of long and short positions instead, aiming at a similar target.

Seeing as how you're sitting in cash, it's a safe bet that you see the markets in general arriving at a cathartic collapse sometime in the not-too-distant future. Care to hazard a guess as to when you think that might occur? This summer? This fall? Sometime next year? All of the above?

Inquiring minds, and all that stuff...

2008 Jun 08 10:42 AM

[User 175563:]

As I said in my most recent blog post, I think investors are going to have one eye on live blog and twitter updates from select WWDC attendees, and the other eye on the indices.

Friday's huge loss in the markets with Oil going parabolic has made the investor's fickle and nervous. I fear that in spite of Jobs' Reality Distortion Field, investors are going to apply extra scrutiny, if that's possible for such an event.

Apple is in an untenable position to try and meet the 3G expectations while at the same time promote the future of OS X. I'm afraid that hype for the 3G has grown so large, combined with the economic wild card, that Apple's message will get diluted no matter what they do. And real-time AAPL stock charts are going to look like a seismograph during a category 8 earthquake.

2008 Jun 08 11:34 AM

[Thoughtful:]

Well, Zach (Ernie), after your article, your disclosure statement says, "Disclosure: Author has a long position in AAPL", then above you say you're now all in cash??

I wonder if actively attempting to crank out these "fear and trembling" headlines for Seeking Alpha would benefit you in any personal way?

On second thought, I don't think we need to worry that some career Java programmer like Ernie can actually move Apple one way or the other with his scary headlines followed by his positive "re-analysis.

Hard to believe someone who encourages you to follow his every move on "Twitter" (???), and who invents a persona for himself (Search Zachary Bass on Wikipedia) from some old 1971 movie, is such an expert. Is there anyplace on the web that you haven't been trying to influence Apple equities in the last couple months?

2008 Jun 08 01:06 PM

[martyg:]

bass & lentz

heckle & jeckle or alphonse and gaston

i lies and the other swears to it

2008 Jun 08 02:25 PM

[imthewiz:]

LOOMING NEGATIVE DIVERGENCE - MACD

Congrats on being able to use MACD to see the future. MACD is a trend FOLLOWING indicator it is NOT a leading indicator.

2008 Jun 08 02:35 PM

[Oh Blah Dee...:]

RE: Disclosure: Author has a long position in AAPL
RE: I'm all cash right now.

So, which is it Mr. Bass?

2008 Jun 08 02:41 PM

[User 175563:]

Long on Thursday, all cash on Friday after market dropped and Oil went parabolic. Capital preservation first, maximum profits second.

2008 Jun 08 04:49 PM

[Neil Anderson:]

Apple will amaze with iPhone 2.

2008 Jun 08 05:19 PM

[digivision:]

I liked the article thanks Zach, I bet you are right about this

"I'm afraid that hype for the 3G has grown so large, combined with the economic wild card, that Apple's message will get diluted no matter what they do."

This time however the hype was created by the media and rumor sites
and not by the Apple machine.. it will be a while before we see Apple breaking past $200

2008 Jun 08 10:19 PM

[Morton/door...:]

As long as Steve and his brain are healthy then AAPL will do very well and I expect it to move up above 200 by the end of June.

2008 Jun 09 03:24 PM