Apple (NASDAQ:AAPL) broke briefly below $400 today for the first time since December 2011, the latest negative milestone in a stock that has suffered a stunning fall from grace. If last September, when AAPL rallied above $700 per share, someone would have told you the stock would be below $400 by April, you would have called them crazy. The sharp, swift decline in AAPL is especially hard to believe given the fact that the S&P has made new all-time highs in the last few weeks and is up around 10% for the year.
Nobody held a crystal ball that predicted AAPL’s precipitous fall, but there have been signs of trouble at each step of the way. My philosophy is that once a stock starts to break key short-term moving averages, traders should exit swing positions and take a more short-term tactical approach. At several stages during the correction, I admittedly looked for potential buy set-ups for AAPL to bounce, but they never materialized or triggered and the bias remained to the downside.
With any stock that is in a correction, you should always measure composure during each leg of the journey by watching key levels. Last earnings season in January, many people thought that, after falling from above $700 to below $500, AAPL could be ripe for a bounce. We typically do not like to take options into earnings because it is essentially a roll of the dice, and that approach proved prudent with AAPL as it accelerated to the downside after its report. The stock hasn’t been able to regroup since as growth investors head for the exits and value investors do not yet see a compelling reason to buy.
The last tradable opportunity on the long side was when the stock cleared the $435 key level, and while it gave traders a nice tactical long back above the 50-day at $460ish, the bounce dissipated. Apple didn’t show commitment as the 50-day failed to hold, the same way it didn’t hold the rallies at $500 and $465 levels previously.
AAPL had remained mostly out of play until this week when it appeared to set-up for a potential flush through the $419 pivot. We finally got that down move today as the stock has dropped 23 points to as low as $398.11. If AAPL is unable to bounce, the next short-term level to watch will be $396. The bigger support below that is around $380.
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Disclosure: No position in AAPL