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Bearish Engulfing Candles: The IPAD is not the real story for AAPL

|Includes: Apple Inc. (AAPL)

Today AAPL, Inc.  is going to launch the IPAD 2 and to many I am sure that seems like a great story and in the premarket AAPL is trading slightly higher.  Here at Day Trade Well we focus on the technical analysis of stocks so let’s look at the AAPL daily chart to get a better handle on where the stock may trade.

The trend of the chart is still bullish with the 20 day SMA above the 50 day SMA, AAPL is slightly overbought and with yesterdays action is on a weekly R3 sell signal and the current candle formation is an unconfirmed bearish engulfing candle. 

A bearish engulfing candle is a very reliable pattern which signifies the potential end of a bull move.  The charachteristics of a bearish engulfing candle are 1) it must occur at or near the top of an up move, 2) the previous candle must be green (a positive day), 3) the entire body of the current candle must engulf the entire body of the previous green candle  and 4) the current candle must be red signifying a down day.

Since April 2010 AAPL has had 4 bearish engulfing candle patterns: 4/30/10 resulted in a 70 point loss, 6/21/10 resulted in a 36 point loss, 11/9/10 handed investors a 24 point loss and 2/18/11 which we are still resolving but at this point 15 points off the highs.  Over this time frame the 50 day SMA has been a wonderful place for the stock to stop going down and we held three times last week, holding this level is critically important for the stock and the markets in general.

What will happen this time?  We can’t predict but watch the 50 day SMA as support and if AAPL trades below it the down move could be more significant.  In the meantime, enjoy the IPAD 2 just don’t think that the stock moves because of it.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.