If you tried to take a bite out of Apple (AAPL) over the past six months, hoping to catch a return move to $700, you quickly learned that this particular apple can bite back. Shares of Apple have fallen more than 40% since last September's all-time highs, leaving investors bewildered while the bears rejoice.
But over the past several months, the bulls, rather than being "once bitten, twice shy," are tentatively trying again. Apple is scheduled to release its earnings report this afternoon, and it will be one of the most followed announcements of the season.
The biggest question heading into the day does not appear to be whether Apple disappoints, but rather, if it disappoints, will the market shake off the news as it did Caterpillar's (CAT) results in Monday's session? From a technical standpoint, the odds are good. In fact, the multi-week outlook for Apple is even better than for Caterpillar.
Let's look at some of the details, beginning with another security altogether: Seagate Technology (STX). Seagate is interesting, not because it happens to be another technology stock but because of its intraday action over the past couple of weeks. When you pull up a 60-minute chart of Seagate for the period April 8 through April 19 and then compare it with Apple's weekly chart since the end of last May, you will quickly see the similarities in price development.
Seagate on the 60-minute chart and Apple on the weekly chart had strong rallies heading into their respective highs. These moves were followed by even more rapid retreats. Two-wave continuation moves followed (marked "A" in each image below). The continuations, however, were not as dramatic as the initial selloffs, and before long, both Seagate and Apple were experiencing a shift in overall momentum. Despite continued selling, each selloff was followed by a swift recovery attempt, changing the momentum of the downtrend channel.
This particular series of price moves is very common and is a strong segue into a larger price correction off support levels. One of the key traits is within the channel shift itself. Ideal reversals form when this channel forms a set of three lows, and when each low is only moderately lower than the last when compared with the initial low of the trend (marked "B"). A volume decline at each new low also helps.
A buy trigger occurs as the security reaches the third low as it pulls into the lower end of its trading channel. This took place on Friday morning in Seagate and would only now be developing in Apple on the daily time frame.
In some cases, the series of pattern development we've seen in Seagate and Apple can lead to a complete trend reversal, but in others it can merely mean a longer break in the trend. This can then be followed by another low before it tries to hold once again, although the lows will tend to be further apart than those in the set of three.
Right now, Seagate is at such a crossroad. It is hitting the first major resistance for this reversal pattern once it broke the downtrend channel, and it can easily stall or reverse its recovery intraday. This price resistance in the area of $35 corresponds to prior highs. A similar level of resistance in Apple will be in the zone of $460.
Caterpillar has a similar series of price moves developing on its daily time frame since last November. One notable difference, however, is that it lacks the three lows that shifted the momentum after the continuation breakdowns in Seagate and Apple. It remains a possibility, but it would take several weeks to develop.
