Apple Inc. (NASDAQ:AAPL) stock is finally a short after its monster rally in 2019

Apple Inc. (NASDAQ:AAPL) stock is finally a short after its monster rally in 2019

Apple Inc. (NASDAQ:AAPL) stock is finally a short after its monster rally in 2019

Apple (NASDAQ:AAPL) stock finally showed some weakness Tuesday after its double-digit move higher off of its January low. Beginning the year with a thud, AAPL stock has now tacked on more than 40 points! While, certainly, Apple’s rally was warranted, considering its previous comparatively cheap valuations, but Apple has come too far, too fast.

Now that the momentum has finally waned, it is time to position for the pullback in Apple stock. Brace yourself.

Apple stock certainly started the year in a dismal fashion. Shares dropped 12 points on the second trading day of the year following a revenue warning from the company. Revenue did indeed come in basically in line with that warning at $84.3 billion versus prior lowered guidance of $84 billion.

Yet AAPL stock exploded higher, in essence dismissing the lowered revenue announcement. The stock is now up some 30% since the warning, far outpacing even the torrid gains this year for the S&P 500. This now puts AAPL stock at the highest P/E ratio of the past three months at well over 15 times. Apple is no longer cheap and ignorance is no longer bliss.

The last up-leg in the rally can be attributed to a bullish note out of BAML. The upgrade was attributed to the potential of increased stock buybacks and stability in the global supply chain. No mention of earnings or revenue growth.

Importantly, BAML actually lowered 2020 phone unit sales by 5% and raised 2021 sales by just 2.3%. The net effect? Lower combined two-year phone sales for a company whose flagship product is a phone. Still, Apple stock ripped higher.

Bottom Line on Apple Stock

Apple is looking decidedly overbought from a technical perspective. Shares reached a 9 day RSI of over 80 before finally weakening slightly. The prior time AAPL stock reached this extreme marked a significant intermediate-term top in the stock. Implied volatility is also near the lowest levels of the past year, another bearish sign that complacency has set in.

Most importantly, AAPL stock finally had a down day yesterday after seven straight up days. Apple opened higher and at fresh recent highs before reversing course and closing lower on the day. This type of reversal pattern is usually a sign that the buyers have finally become exhausted. This is especially true after such a strong rally like the one in AAPL.

Traders should look to short an overvalued and overloved AAPL stock on any rally now that the upside momentum has finally been broken. Earnings are due April 30 and ex-dividend date is expected to be in early May, so I would cover the trade before then to avoid any earnings or dividend risk.

Options traders may want to consider a short-term put diagonal, buying the March 29 $190 puts and selling the March 22 $187.50 puts to position for a short-term pullback in AAPL  stock.

Overall, the bias in prices is: Upwards.

Note: this chart shows extraordinary price action to the upside.

By the way, prices are vulnerable to a correction towards 177.25.

The projected upper bound is: 196.16.

The projected lower bound is: 181.77.

The projected closing price is: 188.96.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 29 white candles and 21 black candles for a net of 8 white candles.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 82.6811. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a sell 27 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 74.50. This is where it usually tops. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 51 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 100.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 11 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 6 period(s) ago.

Rex Takasugi – TD Profile

APPLE INC closed up 1.630 at 188.160. Volume was 15% below average (neutral) and Bollinger Bands were 23% narrower than normal.

Open High Low Close Volume___
186.230 189.490 184.730 188.160 31,035,232

Technical Outlook
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bearish

Moving Averages: 10-period 50-period 200-period
Close: 181.95 168.49 190.65
Volatility: 23 28 38
Volume: 29,583,072 28,972,082 33,088,222

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

APPLE INC is currently 1.3% below its 200-period moving average and is in an upward trend. Volatility is Our volume indicators reflect volume flowing into and out of AAPL.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on AAPL.O and have had this outlook for the last 37 periods. Our momentum oscillator is currently indicating that AAPL.O is currently in an overbought condition. The security price has set a new 14-period high while our momentum oscillator has not. This is a bearish divergence.

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