How to Play Apple's Upcoming Bounce

 | Jun 15, 2017 | 12:00 PM EDT
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Stock quotes in this article:

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The question of the week, of course, is whether or not tech stocks have peaked, after falling sharply since last Friday's opening, while Blue Chips have continued higher. For an objective conclusion that avoids the typical subjectivity of Wall Street, as those with long or short positions "talk their books,, let's run one of the leading tech stocks through our DSE (decision support engine) and see what the data recently suggested to members of our live-market Trading Room.

Below is the weekly bar chart of Apple (AAPL) , going back to early 2014. The labeling schematic is the primary scenario, due to the indicators described below. The alternative scenario allows one more high to around $165 +/-$8, unless $129 is broken below first. If that level is broken, it would likely mean no new highs are forthcoming. Again, this is the alternate scenario.

The primary path is dictated by the weekly stochastics, which have just crossed down, issuing a sell signal that should last eight to 13 weeks, if not a bit longer. With the red stochastics now falling away from the green, the condition is said to be in free-fall, where surprises tend to happen on the downside.

Another indicator informing this primary path is the price extreme that the recent high made it to, then reversed from. This olive/gold line is the upper two-standard deviation band, which controls 95% of normality. Price doesn't like to be above this statistical extreme for very long. Notice this month's occurrence saw a quick thrust above the upper two band, decline, then a rise to a lower price high, which caused the failure to retake the band. The message of the market is one of momentum loss, which is problematic for stocks at all-time highs.

While the DSE has identified $129 as the line in the sand for the bulls, the $139 level is now critical support. In other words, any test of this higher support line must result in a reversal and new high, in a hurry, or the sellers will arrive to return their AAPL shares as the smell of rot will have begun.

Combining these indications, with this week's fastest and steepest decline in a year, the objective conclusion must now be that Apple shares have further to fall. The DSE's pattern recognition algorithms have hallucinated the bearish forecast for the coming 12 to 18 months with the red arrow, pointing back to the $90 zone. The blue arrows are the route that price is highly likely to approximate as the next 50 points of vertical price movement take place to the downside.

Therefore, after a test of the $140 level in the next few days, the following corrective rise into $149 +/-$1 should be used to exit this name, before the next wave of selling targets the mid-$120s, with more bearish potential thereafter.

For updates on this analysis, as well as other trading opportunities, try Ken Goldberg's DSE Alerts service for free for a couple of weeks, or contact him at support@dsetrading.com

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