One of the most amazing things about Apple's stock is its ability to bounce back higher when everybody is afraid that it is going down. In this article we shall examine the technical concepts behind the move up in Apple's stock price.
The key lesson from this analysis is this : Pay attention when important stocks drop to their rising 200 MA.
A stock like Apple is widely followed by fund managers. Even Warren Buffett is interested in Apple. Buffett sold almost all of his IBM shares but he invested more in Apple's stock. That coupled with the fact that Apple's stock price was correcting to the 200 MA was powerful enough to send Apple higher.
Well, I guess when a stock has the vote of the most powerful and successful investor in the world...
It is likely to go up.
And because Apple is a component of all 3 major indices, it will affect the performance of the US stock market.
A stock chart is not a rear view window where you look to see what has happened. In fact, if you are highly skilled in the art of chart reading and reading the psychology and emotions of market participants, you can anticipate where are stock is likely to go.
The chart above is the daily chart of Apple. Apple has been trading sideways for quite a while and it actually tried to breakout. If the breakout materialized, it would have send the stock higher and the stock market higher.
However, the problem started when there were reports of Iphone missing sales target for the iPhone X. Investors fear that iPhone X may not be as popular as expected. Negative news seem to create a domino effect and before you knew it everyone was worried about Apple's earnings.
That was around the time that Apple formed a topping tail which I had marked on the stock chart. As most traders will know, the topping tail candlestick pattern is a bearish reversal pattern which you can often find near the top of a stock.
This time, it did its job well and warned traders of a short term top in Apple. The next day, the stock started to sell off. 2 days later, the stock dropped below the important 50 MA. Then Apple dropped below a support area.
When Apple is very weak, investors are fearful.
Eventually the entire market collapsed because of this plus some fear about interest rate going up. Apple dropped swiftly and brought the whole US market down with it and the selling extended to markets around the world. The more than 3000 point plunge in Dow will leave a lasting memory in the minds of many investors.
I think many young and new investors who has never seen such a plunge before were shocked. Well, you never really know how devastating the market is until you experience a crash, bear market or plunge.
If you look at the daily chart above, you can see that Apple's stock actually dropped to the rising 200 MA. The 200 MA is a very powerful psychological support as it is watch by many many investors and traders. A flat 200 MA may not be that powerful. But a rising 200 MA represents a bullish long term outlook.
If a stock can bounce off the rising 200 MA, then it tells us that the long term outlook for the stock is very healthy. That is why many traders will carefully look at stocks that corrects to the rising 200 MA and see if they can try to bottom fish a stock there. Some investors will also buy their favorite stocks when it drops to the 200 MA.
I have actually written about Apple as it dropped to the 200 MA some time ago.
One must always remember that the 200 MA is a support area. It does not mean that stocks will magically hit the 200 MA and then shoot back up. Sometimes it may drop a little below the 200 MA and then bounce back up. As you can see in the chart above, that is the case for Apple.
Apple did form a nice super bottoming tail near the 200 MA and this was a bullish reversal signal for Apple. I call it "super" because of its unusually long tail. This candlestick represents heavy selling at the start of the day only to end up closing near the highs.
Isn't it interesting that a sell off in Apple begin with a topping tail and ended with a bottoming tail? And isn't it interesting that the bullish rebound in Apple happened right after a bottoming tail formed?
Well that's because topping tails and bottoming tails are signs of trend changes. Which is why you should really pay attention to your stock if it forms any of these 2 candlestick pattern.
After the appearance of the bottoming tail, Apple broke above a daily downtrendline. This is another sign that the trend is about to change. Many traders like to buy stocks that break a downtrendline.
The chart above is the weekly chart of Apple's stock. As you can see, the previous congestion area which I have drawn a box over it can act as a support area. Therefore, the fall in Apple at least will be supported. Which is why investors should try to find slowing selling momentum when a stock drops to a support area.
The stock formed a weekly doji or spinning top pattern at the weekly 50 MA and on heavy volume. The heavy volume was a big clue that told us that investors were selling in a panic and smart investors were buying the stock. Which is why there is a lot of volume in the stock.
Sell offs that happen on heavy volume can often tell us that the end of the correction is near.
The last chart that I want to show you is the 60 min chart of Apple.
The 60 min chart can often tell us in advance what will likely happen to the stock in the daily timeframe. As you can see, the bearish short term downtrend started when there was a bearish cross. As long as the stock was below the declining 50 MA, Apple continued to sell off lower.
On February 12, Apple gap up and broke above a 60 min downtrend line. Then it traded back above the 60 min 20 MA and 50 MA. This hinted to traders that the short term downtrend has ended. Apple indeed started a new bullish uptrend. It also had a bullish cross.
At this moment, Apple is still in a 60 min uptrend but it is reaching the old highs which is a resistance area.
So, there you have it. These are important technical lessons from Apple's stock chart. Study them well because nothing is new under the sun. The stock market will experience more sell offs in the future and if you know this pattern, you may be able to catch the bottom and profit from it.
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