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Article / 05 August 2015 at 13:30 GMT

Buy Apple now? Don't catch a falling knife

Technical Analyst / Saxo Bank
Denmark
  • Apple shares are continuing to slump
  • Technical indicators suggest a move to around $100-105
  • Bears could even test of the $100 level

By Kim Cramer Larsson 

Apple is experiencing its biggest drop since 2012. Since its all-time high it is down by 15%. For some it might seem to be a good time to buy Apple cheap, but I think this would be like catching a falling knife. We might see a minor rebound, but I do not see any major turnaround in the near future. 

On the daily chart we can see how Apple stock has dropped below the 200-daily moving average for the first time since 2013 and below the support at around $120.

There was a warning sign a couple of weeks ago with a bearish engulfing candle followed by a major gap down. Unfortunately I was on holiday so didn't see it. 

New bearish technical signal in Apple's chart
Apple daily
Source: Saxo Bank

There is no divergence on RSI and MACD, and Bollinger bands® are expanding on both daily and weekly indication that we are in the developing stage of the move. 

A move to take Apple down to around the $104-105 level – which was the consolidation area back in January and is the 38.2 retracement of the bull move since 2013 – is very likely. 

It has formed what looks like a head and shoulders pattern breaking the neckline, which also indicates a target price around $105.

Weekly RSI, which has shown divergence since Q1, is currently testing the 40 threshold, so where it ends this week could be a good indication of the medium-to-longer-term direction. 

However, I would still be cautious to buy at that level before I see what the indicators and the market tells me. 

Bears are in control and might want to try to test the $100 level
Apple weekly
Source: Saxo Bank

– Edited by Oliver Morrison

Kim Cramer Larsson is a technical analyst at Saxo Bank

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