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Apple vulnerable to price and relative setback

September 17, 2012

17 September

Apple (AAPL) has been an important contributor to the bull market since early 2009, as it has become the largest US stock and has become the highest market cap stock ever.

Now though, Apple beginning to set up according to my RSI divergence criteria. Not every criterion is in place yet but most importantly, the weekly RSI and MACD divergences are in place.

Weekly chart

Aapl_weekly

Previous times Apple has set up according to these weekly divergence criteria are:

  • March 2000: The stock fell from $37 to $20 by June 2000
  • January 2006: The stock fell from $85 to $50 by July 2006. This divergence was against a peak almost one year earlier
  • December 2007: The stock fell from $202 to $116 by February 2008
  • January 2010: This divergence failed to produce a significant pullback. The MACD divergence was minor and only an 11% pullback occurred over the next month before the stock powered higher

Daily chart

Aapl_daily

 

  • Volume indictors aren’t something I usually follow but there is a divergence on the On Balance Volume, which means volume has been weaker with this latest advance to a new high
  • The daily RSI criteria have not been met yet

Apple pairs charts

It might be possible to get all the divergence criteria met through trading a pair. Here is Apple versus the S&P500 Index.

Weekly chart

Aaplspx_composite_weekly2

  • There is a MACD divergence but the RSI has not quite broken 70. The weekly RSI criteria are not yet in place
  • A further rally will give the criteria but relative failure now will not give them
  • A divergence can be achieved now by pairing AAPL with weaker indices such as Dow Utility or Dow Transport indices. Daily criteria are not quite in place though, although those are only ideal criteria that I’ve found most reliable. Apple could still sell off without all criteria in place
  • The previous example of weekly divergence on the relative RSI and MACD came in October 2010 and this led to an eight month sideways consolidation before the uptrend resumed
  • Seeing the chart turn down is an important part of the signal. Weekly divergences existed in February 2012 but were just blown away by the continuing uptrend (see vertical line)

Summary

  • Not all of the criteria are in place for a short trade on Apple on price or relative
  • Keep a look out for these entry set ups according to the RSI divergence criteria
  • Apple has a high weighting and is a bellwether stock, so what happens here is important for the whole market

 

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