The recent announcement that Apple founder and CEO Steve Jobs was taking some time off due to health issues provides us with an opportunity to see how news events can affect stock prices.
Below is the daily chart of Apple. The big candle, second from the right, marks the news event. Looking at volume, we can see there was a huge surge in volume for that candle, as the news event clearly brought many buyers and sellers in. The market fell down to a trendline, which coincided with a 38.2% retracement level, before closing higher.
The idea that Apple's stock price would fall due to Jobs taking a leave of absence is not surprising and is intuitive. Using technical analysis, though, traders could have identified levels to close short positions, or ideal levels to buy on the dip.
Of course, much depends on the timeframe of the trader in question. If we look at the weekly chart, the news event is not visible; the chart continues normally without any interruption. Thus the weekly and monthly charts may be useful tools for those looking to participate in the markets but remain safe of short-term news events.
As always, feel free to share your opinions and questions in the comments section below.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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