How to Play This Apple Decline

 | Jun 15, 2017 | 3:43 PM EDT
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Stock quotes in this article:

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Apple (AAPL) has declined in recent sessions. Your view of this decline will likely be colored by your entry level if you are long AAPL. If you went long AAPL back in August through November in the $110-$105 area you probably view the recent drop in price as a pullback or even a buying opportunity. But if you bought AAPL in the last consolidation in the $145-$140 area you may be nervous. If you bought AAPL around $155 as it stalled you are underwater and perhaps wringing your hands and checking the latest price every 15 minutes. Trade location matters.

Let's try to be more detached and academic as we look at the latest charts and indicators. In this daily bar chart of AAPL, below, we can see that prices broke below the now flattening 50-day moving average line. The last time that AAPL broke below the 50-day line was in November and it stayed below the line for about five weeks. AAPL is still above the rising 200-day moving average line. (Apple is a holding in Jim Cramer's charitable trust, Action Alerts PLUS.)

Chart analysis is also about looking at volume and other indicators. Notice how volume shot up in the past week as some traders voted with their feet and sold. The daily On-Balance-Volume (OBV) line has turned lower recently, signaling more aggressive selling, but the line was flat for three months even as prices pushed up to new highs. The trend-following Moving Average Convergence Divergence (MACD) oscillator shows a lower high in May even as prices make new highs and a bearish crossover. This indicator is pointed down toward the zero line and crossing the line would be an outright sell signal.

Not everyone is concerned about short-term jiggles on a daily chart so we always like to look at a weekly chart, too. In this weekly bar chart of AAPL, below, we have mixed signals. Prices are above the rising 40-week moving average but look "extended" when we look back at some history. The weekly OBV line turned up last June and confirms the advance but the line has stalled in the past four or five weeks. In the bottom panel is the weekly MACD oscillator, which is crossing to a take profits sell signal or a sell when prices are still in an uptrend.

The Point and Figure chart of AAPL should also be consulted for clues. This Point and Figure chart, below, shows how AAPL has broken down from a small double-bottom pattern at $149.43 with a possible downside price objective of $130.00.

Bottom line: Traders may want to buy the dip in AAPL because it has worked in the past, but you know that phrase about "past performance..." So at this juncture I want to err on the side of caution. Weakness under $140 could precipitate further declines while it will take gains above $156 to convince me that the upside holds more promise.

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we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...

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