Apple Inc.: The Euphoria Dims

Written by William Kurtz, Candle Wave LLC

The price of Apple shares has risen in a nearly unbroken ascent from $105.12 in March 2009 to a peak of $680.87 on August 27, 2012.  Its final, explosive rise began about a month ago, shortly after July 25, 2012, and was marked by a Low on that day as well as by cross-confirmatory extreme readings in certain Indicators, which in combination foretold a substantial upside movement.

On Monday, August 27, prices gapped Up $16.77 on Opening at $679.99, rose slightly, but then traded lower throughout the day, posting a daily Low of $673.54 – and, importantly, leaving in its wake a $7.91 Gap between the previous Friday’s High and Monday’s Low.  At the time, it appeared to be an Exhaustion Gap (which often leads directly to a significant peak); and in retrospect, that’s what it was.

The explosive rise to the top last Monday, in conjunction with the Gap and with Indicator readings, constituted evidence (but not proof) that, indeed, an important peak had been posted.  Intraday prices on Monday retraced about 62% of the initial drop from the High, but were unable to sustain that level; and they Closed below the 50% retracement level.  That initial retracement was interesting in itself, in that retracements of initial declines from important peaks often are stopped at the 61.8% level – and thereby constitute a first suggestion that the operative trend in Apple shares switched from Up to Down at the peak.

Click on any graph for larger image.

Having that early clue in mind, we had our eye on the Gap.  Gaps are interesting phenomena, because they tend to have a limited life.  Gaps tend to be filled.  They seem to act as price magnets.  They also act as Support (of prices in a declining trend) and as Resistance (of prices in a rising trend).

Progress in the direction of filling the Gap came on the next day, Tuesday August 28, when a great incursion into the Gap was posted by the daily Low of $670.67.  The size of the Gap had been severely reduced, but the Gap had not yet been filled.

Prices bounced higher the next day, Wednesday August 29, to and above a recalculated 61.8% retracement of the decline from the peak – but were unable to sustain the rise, and closed at $673.47 after a short slide and the appearance of weakness.  The final price bar on the 30-minute chart was a Candlestick “Hammer,” a bullish pattern; but it was a tiny bar and wrongly situated, so it was given little credence.  The Exhaustion Gap of Monday August 27 had already been reduced in size by Tuesday’s Low, but it was still an open Gap – so the “magnet” was still active, and was beckoning prices to come and fill it.

The next day, Thursday August 30, was decisive.  Prices gapped way Down on opening, thereby blowing right through the remains of the Exhaustion Gap and the Support that it suggested.  The Exhaustion Gap was reduced to non-existence.  It was no longer a factor in any calculation.  However, the strength of the down-move through the Exhaustion Gap was bearish, so we looked for lower prices; and it was indeed lower prices which prevailed during the balance of the day on Thursday August 30 and today, August 31.  Prices spiked down to a Low of $657.25 today, thereby becoming somewhat oversold in the very short term; and they are in the process of bouncing, by way of partially relieving that oversold condition.  Prices closed today at $665.24.

The story is not yet complete!  Recall that prices gapped Down on Opening yesterday.  That Gap, between $671.55 and $672.60 and above today’s Closing price, remains open. At one and the same time, it is a “magnet” and “Resistance.”  Because Gaps “tend to be filled,” the possibility of a price rise toward the Gap, or even going so far as to fill that Gap, must remain a consideration.

So – which way will it be – Up, or Down?  Prices and the Indicators aren’t much help, because they’re not at extremes – not at obvious Reversal points.  Apple shares are still slightly oversold, in the very short term.  I’d give a slight edge to the proposition that prices will rise, but not necessarily to the point of filling yesterday’s Gap.

Longer term, however, I believe that a long-standing peak was posted last Monday; that the operative trend switched from Up to Down at that time; and that the outlook is for lower prices in Apple shares.

Contact William Kurtz: [email protected]

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