Apple’s “Generational Low”


January 14, 2012 (2:00 pm)

We’d like to share two quick charts on Apple. There has been much talk over the past few weeks about whether the $500 level will represent a “generational buying opportunity” when we look back in a few months. Let us know what you think in the comments.

Important Trend Lines

Apple bounced off the very significant blue trend line that it has formed over the course of the entire correction. Once it’s able to decisively take out the orange trend line, which has proven to be firm resistance thus far, the correction will officially be over.

AAPL Trend Lines

Falling Wedge

Apple dipped to just under $500 this morning. This new low formed the third touch of the bottom trend line and has validated our enormous falling wedge. This new low took place with rising RSI momentum, clearly forming positive divergence. Each of the lower low’s have been established on weaker and weaker selling pressure. A test of the upper trend line is due, with a potential breakout on earnings. Due to high call option OI this Friday, consolidation near $500 would make a lot of sense until next week.

AAPL Falling Wedge

Divergence Precedes Huge Changes in Trend

The chart below illustrates the power of divergence between price and the RSI/ChiOsc technical indicators. The dramatic trend changes in April and September were both preceded by a prolonged period of divergence between price and the momentum indicators. We’re currently seeing the same trend (but in the opposite direction). While the stock has been forming lower lows, the momentum indicators have been diverging from the downward trend. The selling pressure is decreasing on each subsequent move down. We expect an enormous shift in sentiment and price action after Apple reports earnings next week.

AAPL Divergence