Economaton

The Macbook Air underwhelmed. MacWorld disappointed this year, and Apple (AAPL) tanked bigtime. The market has been in a heady state of euphoria since the iPhone bombshell was dropped in January of 2007. Steve Jobs announced Apple’s switch to Intel processors in 2006. The market was irrationally expecting a neverending sequence of stunners, and “a thinner laptop” just didn’t cut it. What can we learn from the charts?

Apple is rather unique among tech stocks. It’s huge, with a market cap of $115 billion, more than Dell and Canon combined. The company has cultlike status among its devoted followers, and Apple’s high end prices mean that they all have reasonably hefty retirement accounts to fill with AAPL stock. This also means that the market for AAPL hinges immediately upon retail psychological reactions to company actions and the games Wall Street likes to play with them.

Technical analysis provides us with a framework for connecting these dots. (I’m going to save an analysis of the merits of technical analysis per se for another article; suffice to say that I don’t regard it with the sort of religious awe that some do, nor do I denigrate it as tea-leaf-reading hogwash the way others do.) Let’s get an overview of the last run with a monthly chart of AAPL from 2001 to 2008:

We can see a nice bottom trendline from the 2003 upturn, through most of 2004, touched in 2006, and again touched now, in January of 2008 (solid yellow line.) There’s also a rough boundary (dashed yellow line) that usually serves as an upper channel line, but switched to being a support from late 2004 to early 2006. Immediately obvious is that the current selloff is far more dramatic than anything in the recent past. It has, however, held at the channel bottom so far, which is a positive sign. Also noteworthy is the immense volume for January — this market is in turmoil. Lots of people are interested in both buying and selling at these prices. Definitely not a clear cut picture. Note the preponderance of wicks on the bottoms of candles in recent months — recent selloffs have been bought back up immediately.

Let’s zoom in to the weekly chart:

(Bear in mind that the last candle is only two days long, not an entire week, since this was made on a Tuesday.)

Note the gap up on the 12/28 candle - shorts covering? Tax reasons?

MacWorld was January 14th-18th. That week was down, below the 23MA (red line) and the week of the 25th (4th January candle) was worse - note the large upper wick. The big gap down was bought back up and then sold off again, below the medium 45MA (blue line), and below the lower band of the 2.0 Bollinger (grey line.) Now we’re at the critical point.

If AAPL continues to sell off this week, I expect support at 100-106, around the long term 100MA (green line) and psychological support at 100. The short 23MA on the monthly chart (red line) is also at 106, in the same area. The next support is around 83-86, at the resistance of January, 2006 and the support exhibited at about the same levels in January, 2007 (both the dates of MacWorlds.)

But will it? The RSI is dipping near oversold territory (30); if it crosses below with the last stragglers of the current selling and then back up, many will take this as a buy signal, which can create a self-fulfilling prophecy and cause prices to actually rise.

Now, the daily chart:

What a mess. A series of screaming gap-downs throughout January, pausing at MA100 (green line), then falling through hard after the Macbook Air announcement. Frankly, I don’t know what to make of the volume activity over the last week. The broad market sold off hard on the 22nd and 23rd on the MLK day futures selloff, and AAPL sold off with it — but closed up on both days after opening lower. This is a positive sign. Perhaps the retail crowd entered sell orders overnight, which filled at open, and then the pros bought up the carnage during the day, similar to what seems to have happened in homebuilders and financials. The gap down was harder, though, probably due to higher retail interest in a visible company like Apple.

The biggest down day was 1/23, when price pierced the lower channel line (in yellow) and then bought back up to make a hammer. This is a reversal signal, but the next two days were big down days despite strong opens. Price did not pierce support on either day, though it did yesterday (1/28) and today (1/29), on diminishing volume the whole time. People are therefore less interested in these prices… does this mean that the panic is over, or does this mean that nobody’s buying anymore since they expect prices to drop further?

The two indicators are indicating that price is not yet ready to turn up, though it’s thinking about it. Price closed over support today, though I look at it more as a support zone than a hard line. RSI on the daily is already well below 30 (the traditional oversold level), but turning up. The fast MACD indicator has begun to flatten. The market is pausing, considering… the rest of this week will tell us much more. If RSI moves strongly up through 30 and the fast MACD also turns up sharply, if the broader market doesn’t panic again, and if price doesn’t drop much below the support line for long, I’ll consider a cautious bet on AAPL.