Apple Could Be Ripe for Reversal

 | Jun 23, 2013 | 6:00 PM EDT
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The current daily chart of Apple (AAPL) looks a little ill technically. It's currently trading below the 200- and 50-day simple moving averages, and the stock is also in a "sell mode," with the five-bar exponential moving average hanging below the 13-bar EMA. So why would I start stalking a countertrend buy setup in this stock?

Apple (AAPL) -- Daily I
Source: Dynamic Trader

Well, for starters, there's the upside-down head-and-shoulders pattern that many technicians are discussing. I do see that formation, and I believe this scenario could potentially play out in the coming months. In addition, the stock is testing a key support decision that comes in between $395 and $408.

Last but not least, I am seeing another confluence of Fibonacci timing cycles that at least suggest a tradable countertrend low is near. These cycles come in between June 20 and June 25. You can see the cycles illustrated on the first chart of Apple below.

Also take a look at the pink histogram below the price, which represents the clustering of the same timing cycles that the stock is currently approaching. When I see such cycles coming up, I watch for an impending reversal from the current price trend -- and Apple is now trading straight down into this grouping, so I am stalking a possible reversal back upward.

Now, this does not mean I will step in front of a freight train and hope Apple will put in a low. But it does mean I will be watching for a buy trigger on a 30-minute chart, the way I did the last time Apple's timing and price parameters came together for a possible low. As a general rule, I don't see the trigger, I don't take a trade.

Apple (AAPL) -- Daily II
Source: Dynamic Trader

The last time I saw a similar countertrend setup in Apple was around the April low. At least five Fibonacci cycles had come together between April 18 and April 22, and the April 19 nadir came just beyond a 1.618 price extension of a prior swing. (Many moves tend to terminate at extensions of prior swings.) This low, made directly within that expected time window, was then followed with a buy trigger on a 30-minute chart.

Apple (AAPL) -- 30-Minute
Source: Dynamic Trader

That trigger is illustrated on the chart above, and it was followed by a $80.65 rally. This does not mean the same thing will necessarily happen now -- but the stock is certainly worth watching!

Bottom line: If I see reversal indications in the upcoming time window via the 30-minute chart, I will place a bullish bet on Apple, with my maximum risk defined below the low made prior to the reversal signal. If the trade starts to play out in my favor, I will then employ a trailing stop.

For more information on trade triggers, please refer here

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